System and Method for Assigning Responsibility for Trade Order Execution

ABSTRACT

An embodiment of the present invention provides a system and method for a sponsoring organization to: (1) utilize a rules-based computer system to capture trade orders from sub-advisors (money management firms) in order to implement a pre trade compliance review process, thereby enabling the sponsoring organization to prevent the execution of trade orders by a sub advisor that violates securities laws and/or account restrictions; and (2) determine and assign, based on expected market impact of a trade order to buy or sell securities, whether responsibility (discretion over the decisions related to how, when and with whom a trade order is executed) for executing the trade order is assigned to the money management firm for an investment portfolio or to the sponsoring organization of that portfolio. Trade orders are categorized in real-time as “high touch” (significant effort and market impact) or “low touch” (insignificant effort and market impact).

RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.13/344,789, filed Jan. 6, 2012, which is a continuation of U.S. patentapplication Ser. No. 12/938,694, filed Nov. 3, 2010, now U.S. Pat. No.8,121,935, which is a continuation of U.S. patent application Ser. No.12/849,032, filed Aug. 3, 2010, now U.S. Pat. No. 7,856,396, which is acontinuation of U.S. patent application Ser. No. 12/256,196, filed Oct.22, 2008, now U.S. Pat. No. 7,809,632, which claims the benefit of U.S.Provisional Application No. 60/982,320, filed Oct. 24, 2007, and is acontinuation-in-part of U.S. patent application Ser. No. 12/140,047,filed Jun. 16, 2008, now U.S. Pat. No. 7,831,503, which claims thebenefit of U.S. Provisional Application No. 60/945,196, filed Jun. 20,2007 and is a continuation-in-part of U.S. patent application Ser. No.11/783,690, filed Apr. 11, 2007, now U.S. Pat. No. 7,685,057, whichclaims the benefit of U.S. Provisional Application No. 60/791,209, filedApr. 12, 2006, and U.S. Provisional Application No. 60/899,393, filedFeb. 5, 2007, all of which are herein incorporated by reference in theirentirety.

COPYRIGHT NOTICE

A portion of the disclosure of this patent document contains materialthat is subject to copyright protection. The copyright owner has noobjection to the facsimile reproduction by anyone of the patent documentor the patent disclosure, as it appears in the U.S. Patent and TrademarkOffice patent file or records, but otherwise reserves all copyrightrights whatsoever.

BACKGROUND Field of the Invention

The present invention relates generally to securities trading and to themanagement and trading of investment portfolios and, in particular, to asystem, method, process, software and standards for facilitating asponsoring organization's unified trading and control of a moneymanagement process.

The present invention also relates to a system (e.g., a hostedapplication), method (organization of activity), process (division ofresponsibilities), software (computer-based systems), and standards(systems, connectivity and communications protocols) supporting areal-time process inclusive of computer interfaces, order entry,compliance analysis, market impact analysis, order routing discretion,execution cost and quality analysis, trade processing, communicationsengines, communications networks, and communications protocols thatfacilitate centralized portfolio management and directed brokeragecontrol. This system and method creates, for the first time forsponsoring organizations, direct, pre-trade and automated compliancemonitoring of trading activity by sub-advisors providing assetmanagement services to sponsoring organizations while also creatingsubstantial and recurring savings in brokerage costs for shareholdersand beneficiaries in sub-advised investment portfolios. This system(referred to as the unified trading and control system), method,process, software, and standards are applicable to registered mutualfunds, non-registered mutual funds, and institutional investmentportfolios and could be, for example, utilized by: (1) insurancecompanies with single or multi-manager sub-advised variable insurance,mutual fund, and defined contribution portfolios; (2) mutual fundcompanies utilizing sub-advisors for managing their mutual fundofferings, education funding, and defined contribution portfolios; (3)defined benefit plan pension funds, trusts, and endowments that utilizeexternally managed or unaffiliated money management services; (4) largecompany investment portfolios and separate accounts of insurancecompanies that utilize outsourced or unaffiliated money managementservices for their institutional investment accounts; and (5)non-registered mutual funds such as hedge funds, group annuities, andcollective investment funds that utilize outsourced or unaffiliatedmoney management services.

More particularly, the present invention relates generally to themanagement and trading of investment portfolios and to a system andmethod for a sponsoring organization to:

(1) Utilize a rules-based computer system to capture trade orders fromsub-advisors (money management firms) in order to implement a pre-tradecompliance review process, thereby enabling the advisor to prevent theexecution of trade orders by a sub-advisor that violates securitieslaws, account restrictions, or prohibited transactions. The embodimentof the present invention enables a sponsoring organization to properlyimplement, for the first time, its own single, centralized, real-time,rules-based pre and post trade compliance process across all of itssub-advisors and the sub-advisors' trading activity.

(2) Determine and assign, for the first time, based on expected marketimpact of a trade order to buy or sell securities, whetherresponsibility (discretion over the decisions related to how, when, andwith whom a trade order is executed) for executing a trade order isassigned to the sub-advisor (money management firm) for an investmentportfolio for high touch trade orders or to the sponsoring organizationof that investment portfolio for low touch trade orders.

(3) Minimize, through a real-time, computer-based optimization analysis,the expected total execution cost of securities trades in order to lowerbrokerage costs and improve investment performance for the sub-advisedinvestment portfolios. The system and method also generates additionalsavings in brokerage costs through a real-time analysis and optimizationprocess incorporating: (a) the currently offered share price and numberof shares available (liquidity) in the securities markets; (b) executioncosts as input in real-time by executing brokers; (c) expected priceimprovement based on current and recent trading data; (d) time requiredto execute an order by an executing broker (time to execute); and (e)the current rate of change in the share price of a security during thetime required to execute the transaction.

(4) Provide a number of previously unavailable improvements in businessprocesses for sponsoring organizations utilizing sub-advised assetmanagement for their investment portfolios, including greater controland lower brokerage costs related to the process of replacing asub-advisor to an investment portfolio; lower brokerage costs for modelportfolio rebalancing activity; improved reporting for asset segregationrequirements related to forward settlements; and enhanced governancereporting as real-time, up-to-the-minute data is available to sponsoringorganizations across their sub-advised investment portfolios pertainingto holdings, trading activity, compliance violations, and brokerage andother costs.

DEFINITIONS

For purposes of describing the present invention, FIG. 1 listscomponents of the present invention and compares the correspondingterminology used in the investment products within the registered mutualfund, unregistered mutual fund, and institutional investment portfoliomarkets. FIG. 1 shows that similar structures and responsibilities invarious product categories have different names.

As used herein, the terms “advisor” and “board of trustees” in thecontext of registered and non registered mutual funds can be consideredthe equivalent of the “administrator” and “board of trustees” in thecontext of pension plan, endowment, or trust investment portfolios; theterm “sub-advisor” in the context of registered and non registeredmutual funds can be considered the equivalent of a “money manager” or“externally managed” in the context of pension plan, endowment, or trustinvestment portfolios; and the term “sub account” in the context of avariable insurance product can be considered equivalent to a “mutualfund” in a defined contribution plan (such as a 401(k) product) and apension plan's “account” with a money manager. In addition, the retailinvestors (for example, the individual persons whose personal accountsaggregate and are commingled into the assets comprising a fund'sinvestment portfolio) are referred to as “shareholders” in registeredand unregistered mutual funds and as “beneficiaries” in institutionalaccounts, pension plans, etc. It is important to note that the advisoror administrator and associated board of trustees (boards) have afiduciary responsibility to the shareholders and beneficiaries toproperly control (minimize) fund and plan operating expenses, as theseexpenses reduce the returns (performance) of the investment portfoliosto these same fund shareholders and plan beneficiaries. The use hereinof any of these terms, as shown in FIG. 1, implies a similar underlyingmethod and process applicable across registered mutual funds,unregistered mutual funds, and institutional investment portfolios.

BACKGROUND OF THE INVENTION

The system of the present invention relates to the sub-advised industry.The sub-advised industry consists of large financial organizations, suchas insurance companies, 401k providers, pension plans, endowments,trusts and certain mutual fund companies, that operate an investmentcomplex consisting of, but not limited to, mutual funds andinstitutional investment accounts, but do not have money management(asset management) capabilities within their organizational structure tomanage these investments. As a result, these organizations (as thesponsoring organization of one or a plurality of investment portfoliosin the investment complex) utilize outside money management firms(usually mutual fund companies or institutional investment managementfirms) to manage their investment portfolios.

The sub-advised industry, as described above, employs the followingstructure: The financial institution (as the sponsoring organization)acts as the “advisor” with respect to Securities and Exchange Commission(SEC) registration and supervisory requirements or Department of Labor(DOL) oversight and, has fiduciary and regulatory governanceresponsibility for the investment portfolios. The money management firmacts as the “sub-advisor” and is responsible for the investmentmanagement decisions and, as addressed below, the trading activity ofthe investment portfolio they are hired to manage. The sponsoringorganization, as advisor, is responsible for marketing, sales,administrative functions, regulatory filings, compliance supervision andclient services in addition to hiring the sub-advisors, monitoring theperformance and expenses of the investment portfolios, and if necessary,firing the sub-advisors and selecting their replacements.

As of Dec. 31, 2006, the total assets managed on a sub-advised basis,according to Pension & Investments (P&I) magazine, equaled $2.98 TR.Sub-advised assets grew, according to data from Financial ResearchCorporation (FRC), at a 27% annual rate during the years 2003 to 2006.Sub-advised asset management dates its inception to the mid 1970s, whenmutual fund companies such as Vanguard began marketing their own brandof mutual funds with the asset management function outsourced toexternal asset management organizations. Shortly thereafter, insurancecompanies also began to employ a sub-advised asset management structurein their investment products in order to reduce overhead and to leveragethe brand recognition and investment performance of the leading mutualfund companies.

Additionally, large financial organizations, such as insurancecompanies, may acquire a money management firm and utilize the acquiredfirm's capabilities to manage a number of their investment portfolios ona sub-advised basis. In this type of scenario, the large financialorganization may wish to maintain the separate identity and operationsof the acquired money management firm. Examples of acquisitions of thistype include the acquisition of Delaware Investments by Lincoln Life,Putnam Investments by Great West Life, MFS by Sun Life of Canada, andAlliance Bernstein by AXA Equitable.

In the prior art, there are two significant operational deficiencies inthe sub-advised asset management structure. These deficiencies have beenpresent since the inception of the sub-advised industry in themid-1970s. Now, several decades later, industry participants view thesedeficiencies as unavoidable and unsolvable. In fact, these deficienciesare no longer actively discussed as problematic and are now ingrained incommonly accepted business practices. It could be said that thesub-advised industry, without a practical and workable solution, gave upon its efforts to address these deficiencies and moved on to addressingnew challenges in a growing industry. However, a commonly acceptedbusiness practice, irrespective of length of usage, does not equate intoregulatory approval by or exemptive relief from agencies such as the SECor DOL. Examples of recent scrutiny of decades-long commonly acceptedbusiness practices include mutual fund timing and shelf space marketingagreements, which ultimately became subject to considerable regulatoryfocus resulting in substantial penalties, fines, and adverse publicity.

Thus, when a sponsoring organization utilizes an external or affiliatedmoney management firm to manage its investment portfolios, the currentindustry practice is for the sponsoring organization to delegate theresponsibility for executing the resulting trade orders (to buy and sellsecurities) to the sub-advisor (external) money management firm.

The challenges in the prior art that sponsoring organizations face whenusing external money management firms as sub-advisors include:

(1) There is no mechanism through which the sponsoring organization, asadvisor, can implement a compliance process whereby the advisor(sponsoring organization) is able to perform a compliance supervisoryreview, prior to execution in the market, of the trade orders generatedby the sub-advisors. Therefore, the advisor, with whom residesregulatory responsibility over all of their sub-advised investmentportfolios, is unable to prevent the execution of a trade order by asub-advisor that would otherwise violate a securities law, accountrestriction, or prohibited transaction. This omission is particularlyonerous in light of:

a) the SEC's and the Department of Labor's (DOL) heightened regulatoryand supervision requirements placed on fund and plan advisors requiringprevention of violations along with proper supervision and monitoring ofall brokerage and operational expenses incurred by the advisor'sinvestment portfolios; and

b) more frequent and increasingly larger rogue trader scandals costingcompanies billions of dollars (including a $7.2 BB loss reported bySogen in early 2008 for unauthorized trading by a rogue trader).

(2) Sub-advisors have complete control over all phases of the executionof trade orders, including selection of the execution venue (such as thevarious stock exchanges) or broker and the associated cost to executethe trades. The result is that the sponsoring organization cannot exertdirect and positive control over their sub-advisors' decisions relatedto execution venue or broker selection, trade costs, and executionquality without undermining the portfolio managers' (at thesub-advisors) investment process and/or creating undue and unnecessarycomplexity in the trade operations of their sub-advisor money managementfirms. Thus, sub-advised investment portfolios often incur considerablyhigher brokerage (trading) costs and experience lower execution qualitythan what is otherwise commonly available in the market for securitiestrading. This disparity between incurred and available brokerage costsoften exceeds two cents per share. This cost disparity assumes fargreater gravity, from the fiduciary perspective of the advisor, whenconsidering that many of these fund trusts and pension plans trademultiple billion shares of equity order flow annually. As such, asponsoring organization may incur double-digit millions of dollars inunnecessary brokerage costs paid entirely by the fund shareholders andplan beneficiaries who own the sub-advised funds or accounts in theirretirement plans. These additional and unnecessary brokerage costsincurred by sub-advised investment portfolios result in adollar-for-dollar equivalent reduction in investment performance in theyear they are incurred, along with the loss of the compounded benefit ininvestment performance over longer periods of time.

The prior art therefore does not provide a means whereby the sponsoringorganization can assume responsibility for order execution for theirinvestment portfolios while simultaneously: (1) implementing a pre-tradecompliance process across all their sub-advisors; (2) exercisingappropriate control over and minimization of brokerage costs resultingfrom sub-advisor trading activity; (3) enabling the portfolio manager tohave sufficient control over trade orders where the portfolio managerhas very specific and detailed instructions as to how an order isexecuted; (4) protecting the anonymity (or source) of the order fromleaking to other executing brokers; and (5) minimizing the market impactof a trade order on the price of a security. Significant market impactis detrimental as, for example, a large buy order may push up the priceof a stock only to see the stock price fall as soon as the buy order iscompleted. Likewise, a large sell order may depress the price of a stockonly to see the price rise as soon as the sell order is completed.

Despite the clear deficiencies in the prior art, the fact is that thesponsoring organization, as the advisor, is and always has been theowner of all trade orders generated by their investment portfolios,whether or not they are sub-advised by a money management firm. Thesponsoring organization, as a result, retains complete authority andultimate fiduciary and regulatory responsibility as to determining howthese trade orders should be executed. However, in recognition of theabsence of an acceptable, reliable, and practical solution in the priorart, sponsoring organizations have: (1) forfeited, and continue toforfeit, all pre-trade compliance review processes by the advisor overthe trading activity of their sub-advisors while incurring incursubstantial fiduciary and regulatory liability; and (2) delegated alltrade order execution responsibilities over their trade orders to thesub-advisors for their investment portfolios, even when they are notsatisfied with certain aspects of the results (such as considerablyhigher than necessary brokerage costs or poor execution quality) basedon the sponsoring organization's concern that they not interfere withthe portfolio manager's execution of their responsibilities nor createunnecessary complexity in the money management firm's trade operationsprocess.

When trading securities, as stated above, asset managers (moneymanagers) often incur additional trading costs that are over and abovethe cost of the trade alone. For example, referring to FIG. 2, assetmanagers 201 (such as mutual fund companies or institutional assetmanagement firms) usually maintain a network of approximatelytwenty-five executing brokers 202 (including broker-dealers (such asMerrill Lynch or UBS Paine Webber), market makers (such as KnightCapital or Schwab Capital Markets), exchanges (such as the New YorkStock Exchange or NASDAQ), electronic communication networks (ECNs)(such as INET or TRAC), direct market access (DMA) vendors (such as LavaTrading, Sonic or UNX), and block trading systems (such as LiquidNet orPremier)).

Executing brokers 202 are often selected for the additional services(beyond executing the trade) that they can provide to the asset manager201 (mutual fund company or institutional asset manager). The cost ofthese additional goods and services from executing brokers 202 (such ascompany and market research, market data feeds, trade analytics, andsoftware) is added over and above the trade's cost of execution andresults in a higher trade cost than what would otherwise be incurred bythe fund or investment portfolio. Thus, a trade may have an executioncost of $0.01 (one cent) per share and have an additional $0.025 cents(two and one-half cents) per share added to result in a total brokeragecost of $0.035 (three and one-half cents) per share. Since many assetmanagers trade billions of shares per year, these additional few centsper share in trade costs cumulatively create a substantial pool ofrevenue for the asset manager. The higher brokerage costs for theseadditional services utilized by the asset managers 201 (referred to as“soft dollars”) are paid for by the shareholders or beneficiaries asthey are penalized by the lower returns (lower performance) of theirfunds or accounts. This utilization of “soft dollars,” as illustrated inFIG. 2, is not only a long-standing industry practice, but thesebrokerage costs are not included, for example, in the operating expensesof a mutual fund (such as a quoted 1.10% annual operating expense) thatare disclosed in the fund prospectus. As such, a fund's trades are oftendirected to executing brokers 202 as to maximize the benefits receivedby the mutual fund company or institutional asset manager 201. In theevent of any doubt, the practices associated with “soft dollars” havelong been, and continue to be, utilized by sub-advisors managing asponsoring organization's investment portfolios.

An exemplary process 200 for trading by asset management firms, whichgenerates “soft dollars,” is shown in FIG. 2 and described below in thefollowing steps corresponding to the arrows and their adjacent referencenumerals shown in FIG. 2:

211) Asset management firm (or money manager or sub-advisor) 201contracts with executing broker 202 for research.

212) The executing broker 202 sends the research to the asset management201.

213) The executing broker 202 presents the invoice to the assetmanagement firm 201 for confirmation.

214) The asset management firm 201 records the invoice into a softdollar administration system 203.

215) The asset management firm 201, through the soft dollaradministration system 203, derives the trade obligations for paying theinvoice.

216) The asset management firm 201 directs trades to the executingbroker 202 to generate sufficient commission volume to offset the costsassociated with the confirmed invoice.

217) The executing broker 202 reports the trade executions andassociated trading costs back to the asset management firm 201.

218) The asset management firm 201 updates the soft dollaradministration system 203.

219) The executing broker 202 confirms payment of the invoice to theasset management firm's soft dollar administration system 203.

The practice of adding to the cost of trading of securities to create“soft dollars” is a common and longstanding practice in sub-advisoryrelationships, where money managers (asset managers) are hired (and paidan annual fee) to manage pools of assets that belong to external orunaffiliated products or organizations. Furthermore, the sub-advisorycontracts with the sponsoring organization usually contain a clause thateliminates any requirement that “soft dollar” costs incurred by aspecific fund (and its shareholders or beneficiaries) benefit the fundor account paying the additional “soft dollar” costs for their trades.As such, a sub-advised fund or account often pays substantial brokeragecosts for services that do not benefit the shareholders or beneficiariespaying the additional “soft dollar” expense.

In fact, most shareholders in mutual funds are not aware that a fund'sbrokerage (trading) costs are in addition to the fund's annual operatingexpense (as disclosed in the prospectus) and, as such, serve to lowerthe investment performance (return) of their funds. These same fundshareholders are also usually not aware that the mutual fund companiesand institutional asset managers are using the additional “soft dollar”costs for trades in their mutual funds as a vaguely disclosed andunaccountable pool of cash to offset the money manager's operatingexpenses in order to increase their corporate profits.

Overall, the current process utilized by sub-advisors to direct tradesin order to generate “soft dollar” revenue is complex, expensive toshareholders and beneficiaries, and requires that the sponsoringorganization (such as an insurance company or pension plan) surrendercontrol over order execution cost, the selection of executing brokers,and pre-trade compliance with regulatory requirements, even though theinsurance company (as the sponsoring organization) retains primaryregulatory responsibility for the funds (as the advisor for regulatorypurposes) whose assets are being traded. In essence, the sponsoringorganization responsible for regulatory compliance is notified of thetrades only after their execution, usually well after the close of thetrading day.

FIG. 3 illustrates a current process 300 for trading by sub-advisors 301(e.g., money managers) in a sponsoring organization's 304 (e.g.,insurance company) investment portfolios (sub accounts). Typically, thecomplex process shown in FIG. 3 occurs for each trade (usually ten totwenty trades per day per fund) in each of the thirty to sixtyinvestment portfolios (sub accounts) offered by a sponsoringorganization (such as a variable annuity product or pension plan).

The process 300 in FIG. 3 works in the following steps corresponding tothe arrows and their adjacent reference numerals shown in FIG. 3:

310) The sub-advisors 301 create, enter, and direct orders (trades) totheir preferred network of executing brokers 302 (shown as “Bs”) as asingle buy or sell order or may break up an order into smaller ordersfor execution among several brokers. The motivation to break orders upamong several brokers can be driven by a sub-advisor's desire to remainanonymous in the market (as no single broker can discern thesub-advisor's overall investment strategy), the specific strengths ofeach executing broker, and/or the desire to use the fund or plan assetsto generate soft dollars.

311) The executing broker(s) 302 execute (fill) the orders and thesub-advisor 301 is notified electronically that the trade has beenexecuted along with the price per share. The data for each trade, suchas number of shares, price per share, total value, execution costs, andcontra broker, is transmitted through a number of electroniccommunications networks.

312) The executing broker(s) 302 also report the trade fill data to anumber of industry organizations and this data is transmitted to thecustodial firm 303 for the sponsoring organization's 304 assets.

313) After the close of trading, the custodial firm 303 for thesponsoring organization's 304 assets sends a file of the day'stransaction activity and holdings for each fund and investment portfolioto the sponsoring organization 304.

314) In their overnight processing cycle 305, the sponsoringorganization 304 reconciles all activity and holdings for updatingaccount values and in preparation for the next day's trading activity.

In 2007, the industry average costs for executing equity trades,according to Plexus research was 3.00 cents to 3.50 cents per share.

The back office system, through the overnight batch processing cycle,will reconcile the trades, calculate updated portfolio account values orfund NAVs (Net Asset Values), and subsequently update the holdings andvalues for each client investing in their products. At the conclusion ofthis process, the sponsoring organization may implement some form ofcompliance review of the portfolio and its activity as part of anightly, weekly, monthly or quarterly process (as the frequency of thecompliance review practice varies widely). Most importantly, thesponsoring organization 304 has little, if any, direct control over thesub-advisor's 301 choice of executing broker 202 and the associatedadditional brokerage costs incurred by their funds or accounts throughthe use of soft dollars. Likewise, the sponsoring organization 304 hasno opportunity to conduct a pre-trade compliance review of the trades inorder to prevent violations of securities laws, account restrictions orprohibited transactions. Overall, the current process was establisheddecades ago when the sub-advised industry was in its infancy and,despite its impressive $2.98 TR in assets, the sub-advised industrystill does not provide the proper governance practices, comprehensiverisk management methods and full fiduciary control that the practice ofutilizing sub-advised asset management demands from all participants.

BRIEF SUMMARY OF THE INVENTION

An embodiment of the present invention provides a system (e.g., referredto as the unified trading and control system), method, process,software, and standards that simplify the sub-advisor (money manager)trading process, and for the first time, provides pre-trade compliancereview by the sponsoring organization over sub-advisor trading activity,increases control over the trading process by a sponsoring organization,and substantially lowers brokerage (trading) costs on an annual andrecurring basis for the shareholders and beneficiaries investing in thefunds and investment portfolios. In particular, the present inventionprovides a superior trading and control method for the sub-advisedindustry. The system, method, process, software, and standards of thepresent invention address the major operational deficiencies in thecurrent trading and operational processes in the sub-advised industry,resulting in, for the first time, the ability of sponsoringorganizations to: (1) implement a pre-trade compliance review processthat prevents violations in trading activity by their sub-advisors; (2)substantially lower brokerage (trading) expenses on a recurring basis;(3) improve investment performance; (4) improve business processes; and(5) improve governance reporting.

Addressing the shortcomings in the prior art, an embodiment of thepresent invention empowers the sponsoring organization to utilize arules-based computer system to capture trade orders from sub-advisors inorder to implement a pre-trade compliance review process, therebyenabling the advisor to prevent the execution of trade orders by asub-advisor that violate securities laws, account restrictions, orprohibited transactions. The embodiment of the present invention enablesa sponsoring organization to properly implement, for the first time, itsown centralized, real-time, rules-based pre and post trade complianceprocess across all of its sub-advisors and the sub-advisors' tradingactivity. Given that a sponsoring organization may employ in excess offifty sub-advisor relationships across hundreds of funds or accounts,the embodiment of the present invention represents a dramaticimprovement over the prior art.

In addition, assuming the trade order passes the pre-trade complianceprocess without a violation, the system of the present inventioncategorizes, utilizing a plurality of customizable rules incorporatingthe analysis of real-time and historical market data, trade orders ashigh touch orders or low touch orders and subsequently assignsresponsibility (discretion over the decisions related to how, when, withwhom and the cost that a trade order is executed) over the execution ofthese orders to the sponsoring organization when the order is low touch(that is, the order is not expected to impact the market price of thesecurity being traded and does not require significant time and effortby a trader) and to the money management firm when the order is hightouch (that is, the order is likely to adversely impact the market priceof the security being traded and is expected to require significant timeand effort by a trader). Through an embodiment of the present invention,the sponsoring organization is thus able, for the first time, to captureand subsequently direct, in real-time, low touch trade orders to theirselected low cost, high quality execution venues or brokers, whichbenefits the shareholders and beneficiaries in these investmentportfolios by minimizing execution costs and improving the quality ofexecution (rapid speed of execution and realized price improvement) forthose orders. Simultaneously, this embodiment of the present inventionempowers the sponsoring organization to benefit from the portfoliomanager's favored execution strategies and the expertise of thesub-advisor's trading group in situations where an order is high touchand needs to be carefully “worked” to protect anonymity and minimizemarket impact. Finally, the portfolio manager retains control over how ahigh touch order is executed in circumstances where such control isdesirable while also benefiting from the improved performance of theinvestment portfolio that results from the lower brokerage costs of lowtouch orders.

An embodiment of the present invention provides a system and method forenhancing the sponsoring organization's, as advisor, regulatorysupervision over the trading activity of the sub-advisor through apre-trade compliance review process while determining, based on expectedmarket impact of a trade order to buy or sell securities, whether theresponsibility (discretion over the decisions related to how, when, withwhom and the cost that a trade order is executed) for executing a tradeorder is assigned to the sub-advisor (money management firm) for aninvestment portfolio or to the advisor (sponsoring organization) that isthe regulatory entity responsible for the operation of and compliancerequirements for that investment portfolio. Referred to herein as the hitouch-low touch engine, or “HiLo Engine,” or execution discretionassignment software engine, an embodiment of the present invention is arules-based computer system that categorizes trade orders, usingreal-time market data, into either: (1) “high touch” orders, whereby atrade order requires significant time and effort by a trader and wherethe order is expected to have a significant market impact on the priceof the stock; or (2) “low touch” orders, whereby the order does notrequire significant time and effort by a trader and where the order isnot expected to have any significant market impact. As such, the HiLoEngine assigns responsibility (discretion over the decisions related tohow, when, with whom and the cost that a trade order is executed) forthe execution of high touch orders and routes the high touch orders tothe sub-advisor (money management firm), who is able to carefully “work”the order by implementing sophisticated trading strategies and/orselecting one or more executing venues or brokers to complete thetransaction with minimal market impact. Likewise, the HiLo Engineassigns responsibility (discretion) for execution of low touch ordersand routes the low touch orders to the sponsoring organizations toexecute by selecting one or more executing venues or brokers so as tominimize execution costs and improve the quality of execution (rapidspeed of execution and realized price improvement) for those orders. Theplurality of rules employed by the HiLo Engine for categorization oftrade orders as high touch or low touch is flexible, utilizes real-timeand historical market data, and is established and revised in real-timeby either the sub-advisor (money management firm) and/or the sponsoringorganization, according to their agreed procedures. The percentage oforders categorized as high touch or low touch depends on the parametersutilized in the rules employed by the HiLo Engine. However, given thatmany sponsoring organizations trade billions of equity shares annually,it is likely that a substantial portion of this order flow iscategorized as low touch, is executed by the sponsoring organization,and generates substantial annual savings in brokerage costs and improvedinvestment performance for investment portfolios of sponsoringorganizations.

The HiLo Engine, as an embodiment of the present invention, incorporatesfunctions as a real-time, rules-based market liquidity analytical tool;an access and request facility to real-time and historical market dataand specified market data packages; an order discretion assignmentdecision-making engine; a manual user override of order discretionassignment decisions capability; a rules creation, updating andrules-exception depository; a rules and rules-exception testingfacility; an extensive real-time reporting system; a rules, data,decision and order execution discretion assignment audit facility; amulti-level user and organizational access and rights control andupdating facility; an account activation facility; a multiple venuemessage transfer facilitator connectivity system; and an implementationof specialized message formats. The HiLo Engine integrates a pluralityof sub-advisors (money management firms), sponsoring organizations, andexecution venues and brokers into a single and effective communication,compliance, and low cost order routing and execution network. The HiLoEngine's communications network also enables sponsoring organizations tobenefit from a plurality of additional compliance and regulatorysupervisory capabilities that result in significantly improved businessprocesses including: lower brokerage costs and greater controlassociated with the process of replacing one sub-advisor to a fund oraccount with another sub-advisor; lower brokerage costs resulting frommodel portfolio asset allocation rebalancing activity; improvedgovernance process through real-time and historical holdings, activity,brokerage and other costs reporting and oversight capabilities; enhancedreporting on asset segregation requirements related to forwardsettlements on derivative positions; and stronger, real-time,enterprise-level risk management controls.

A further embodiment of the present invention conducts a real-timeanalysis of multiple market-based factors in such a manner as tooptimize the execution process in order to achieve the lowest totalexecution cost for the participants in a securities transaction. Thisoptimization process, through the inclusion of multiple factors inaddition to share price (“Best Ex”), results in a significant savings toparticipants as important factors are analyzed in real-time in order tocreate an optimized list of executing brokers (including the exchanges,ECNs and alternative trading systems (ATS)) that provide the lowestexpected total execution cost for a transaction.

An embodiment of the present invention provides a system (e.g., a hostedapplication) and method (organization of activity) for creating acustomizable, computerized, real-time analysis and optimization processproviding for and facilitating the selection of executing brokers for asecurities transaction to provide the lowest expected total executioncost for that transaction, inclusive of: (1) the share price andliquidity (number of shares at a quoted share price from an executingbroker) for a security; (2) the execution costs as specified byexecuting brokers through a real-time process of setting and adjustingexecution costs according to the business needs of the executing broker;(3) the real-time analysis of price improvement in recent trades in asecurity or group of securities (as determined over a selected timeperiod, number of trades, number of shares traded, type of orders orother similar such parameters); (4) time required to execute an order byan executing broker (time to execute); and (5) the current rate ofchange in the share price of a security during the time required toexecute the transaction.

The expected total execution cost is the sum of all of these factors(share price, execution cost, price improvement, time to execute, andrate of change in the price of a security), converted into a singledollar and cents number (or in another desired currency) for purposes ofcomparing a single executing broker with one or a plurality of executingbrokers and ranking the plurality of executing brokers from lowest tohighest expected total execution costs. The initiating party to thesecurities transaction is thus able to select the executing broker(s)providing the lowest expected total execution cost and to generate costsavings over other alternative avenues for executing the transaction.

As such, the system and method of the present invention enable a partyinitiating a securities transaction (the initiating party) to scan themarket for price quotes and the associated executing brokers quotingliquidity (a number of shares) for the transaction and, based on thecustomizable factors selected by that party, to quickly conduct ananalysis and optimization process that determines the “hot hitters”among a plurality of executing brokers in terms of creating the lowestexpected total execution cost with respect to: (1) share price; (2)execution cost; (3) expected price improvement (the difference betweenactual share price of the security transaction relative to the currentlyquoted bid and offer (ask)); (4) time required to execute an order by anexecuting broker; and (5) the current rate of change in the share priceof a security during the time required to execute the transaction.

A specific implementation of the above inventions is what is referred toas a unified compliance and control system (UCCS). The UCCS is a highlysophisticated, scalable and reliable risk management, compliancesupervision, and order management system for utilization by sponsoringorganizations with their sub-advised and externally managed investmentportfolios.

A key component of UCCS is the HiLo Engine. The HiLo Engine analyzestrade orders, in real-time relative to an issue's current and historicalliquidity and trading volume, in order to categorize an order relativeto potential market impact and, subsequently, assigns discretion overthe execution of an order as follows: (1) orders with significantexpected market impact are categorized as “high touch” orders anddiscretion over the execution of high touch orders is assigned to thesub-advisor (money management firm) for the account; and (2) orders withlittle or no expected market impact are categorized as “low touch”orders and discretion over the execution of low touch orders is assignedto the advisor (sponsoring organization) for the account.

The HiLo Engine also, in the process of capturing an order from a moneymanagement firm (sub-advisor), routes that order to the sponsoringorganization's rules-based compliance system for a pre trade,rules-based compliance supervisory review to ensure that the proposedorder does not violate any securities laws, prohibited transactions, oraccount restrictions that the sponsoring organization has set up for theaccount. Thus, for the first time, a sponsoring organization is able toprevent the execution of an order that would otherwise result in aviolation of any securities laws, prohibited transactions, or accountrestrictions that the sponsoring organization established for theaccount.

Through the implementation of UCCS and its HiLo Engine component,sponsoring organizations, such as insurance companies, pension plans,401k providers, mutual fund companies, bank trust departments, and othersuch organizations that utilize sub-advised (external) asset managementservices, realize additional desirable benefits, including:

-   -   Improved risk management, including improved control over the        manager replacement process, lower model portfolio rebalancing        costs, comprehensive real-time reporting (including the most        recent up-to-the-minute transactions), real-time aggregate        positions for the master portfolio, model portfolios and        individual funds or accounts;    -   Comprehensive compliance, trading and 18f3 segregation        reporting; and    -   Lower brokerage costs and improved investment performance for        their fund shareholders and plan beneficiaries.

For purposes of communication with external organizations, the HiLoEngine utilizes a “web services” communications process to create,receive, and send messages to order management systems (OMS) employed byboth the sub-advisors and the sponsoring organizations. As such, theHiLo Engine (HLE) functions in several different manners, including asa: (a) real-time and rules-based analytical tool; (b) rules depositoryfor determining high touch and low order orders; (c) order executiondiscretion assignment vehicle between sponsoring organizations and theirsub-advisors (money management firms); (d) comprehensive reportingsystem; and (e) transaction message transfer facilitator. As such, theHiLo Engine also serves as a mission-critical component within anintegrated network providing instant two-way connectivity amongsponsoring organizations, sub-advisors (money management firms),compliance systems, order management systems and domestic andinternational execution exchanges, venues, and brokers.

The web services interface enables users of the HiLo Engine toinstantaneously create a message, open a connection, send the message,and close the connection. As such, the utilization of the HiLo Enginedoes not require database integration with compliance and ordermanagement systems utilized by the sub-advisor or sponsoringorganization. The web services functionality provides instant andeffective communication and responsiveness among all entities withoutsacrificing the critical elements of system security and data integrity.

Each order entered by a money management firm for a sub-advised accountis routed to the HiLo Engine, which in turn routes the order to thesponsoring organization's order management system for rules-basedcompliance review.

The HiLo Engine, for each order submitted to it, returns a message tothe sub-advisor consisting of two reports: a high touch versus low touchreport and a compliance status report.

For the high touch versus low touch report, the categorization of anorder as high touch or low touch represents the result of a rules-based,real-time analysis of current and historical liquidity and tradingvolume in order to determine the expected market impact of an order. Themoney management firm establishes, and can modify in real-time, theparameters for the rules utilized to categorize an order as high touchor low touch. The money management firm can also, in real-time, activateor deactivate a rule(s) or set up or remove an exception for an account,symbol, or group of symbols.

The rules and associated parameters selected by the money managementfirm results in the HiLo Engine assigning an order into one of thefollowing five categories for execution, as follows:

-   -   High touch: The execution of a “high touch” order is expected to        have significant market impact and thus, the order should be        “worked” by the money management firm's trading desk.    -   Low touch: The execution of a “low touch” order, such as Buy 500        IBM, is unlikely to create a significant market impact and whose        execution is directed by the sponsoring organization.    -   Low touch algo: The execution of a “low touch algo” order is        unlikely to create a significant market impact. However, the use        of an algorithm (such as TWAP or VWAP) may be considered by the        sponsoring organization in order to electronically slice the        parent order into several smaller child orders.    -   Low Touch TRO: The execution of a “low touch TRO” order is        unlikely to create a significant market impact. However, the        “TRO” or trade rotation order is applied to a group of orders        that may cumulatively create a significant market impact. Thus,        “low touch TRO” indicates that money management firm may        consider a trade rotation order (TRO) when sending this group of        orders to sponsoring organizations.    -   Low Touch Algo TRO: A “low touch algo TRO” report suggests that,        as a trade rotation order is implemented for a group of orders,        the sponsoring organization executing a given order may consider        one the use of an algorithm (such as TWAP or VWAP) in order to        electronically slice the order into smaller pieces.

For the compliance status report, the result of the sponsoringorganization's compliance review consists of one of three discretecompliance status states for each order submitted:

-   -   Compliance OK: The “OK” message means that the order is approved        for execution.    -   Under review: The “under review” message means that the order        has violated one or more compliance rules. No further processing        of the order occurs until a review of the order is        satisfactorily concluded.    -   Order released from compliance: An order that was held as “under        review” is now approved for execution.

An order held as “under review” may ultimately fail to obtain approval.In this case, the sub-advisor cancels or replaces the order throughtheir trading system and the HiLo Engine carries the “order canceled”message to the sponsoring organization's order management system.

Finally, the HiLo Engine does not function as a compliance system.Rather, the HiLo Engine performs the task of communicating thecompliance status, and any changes in the compliance status, of an order(as determined by the sponsoring organization's compliance system) tothe money management firm. As such, the HiLo Engine does not modify norcompromise the full functionality of the sponsoring organization's andthe money management firm's compliance systems.

The HiLo Engine can provide the two reports (high touch vs. low touchand compliance status) simultaneously in a single message to the moneymanagement firm's order management system, as the following eventsoccur:

-   -   The money management firm executes (“works”) each high touch        order through their normal trading relationships and processes;    -   The sponsoring organization executes all low touch and low touch        algo orders; and    -   The money management firm implements any trade rotation order        for the low touch TRO orders in the course of routing these        orders to the sponsoring organization. The sponsoring        organization directs the execution of these orders.

As the sponsoring organization receives the low touch, low touch algo,and the low touch TRO algo orders from the sub-advisor through the HiLoEngine, the sponsoring organization evaluates each low touch algo andlow touch TRO algo in order to determine if an algorithm is desirable inorder to reduce any potential market impact, with the following possibleoutcomes:

-   -   If an algorithm is desirable, the sponsoring organization        selects the algorithm and sets the operational parameters for        the order.    -   If an algorithm is not necessary, then the order is routed to        the market for execution in the same manner as a low touch        order.

Also, additional functionality supported by the HLE includes:

-   -   Execution (fill) reports to the money management firm for trades        by the sponsoring organization,    -   Order cancellations by the money management firm, and    -   Override of high touch orders by the money management firm to        low touch orders.

In essence, the HiLo Engine functions as a message service to relaymessages and orders as well as an analytical engine to assign discretionover order execution based on a real-time analysis of market data. TheHiLo Engine provides an integrated network providing instant two-wayconnectivity among sponsoring organizations, sub-advisors (moneymanagement firms), compliance systems, order management systems, anddomestic and international execution exchanges, venues, and brokers. Assuch, the HiLo Engine is the mission-critical communications hub at thecenter of an effective communication, compliance, and order executionnetwork. Finally, the web services integration process and theconnectivity to the HiLo Engine, once in place for a money managementfirm, provides full integration with all of their sponsoringorganizations.

Overall, the system of present invention provides an ongoingoptimization process that has the potential to generate additionalsavings for the initiating party on each securities transaction itengages in and, as such, the system of the present invention has thepotential to generate significant and recurring cost savings whenemployed by a single or plurality of actively traded investmentportfolios.

A further embodiment of the present invention provides the optimizationprocess in forms of trading other than the above described equityprocess using shares in equities as the unit of trading. For example,the system of the present invention could also be used across multipleforms of trading such as fixed income, options, futures, currency,commodities, derivatives, and other such instruments that utilize astandard category of unit (such as shares, units, bonds, contracts,etc.) on an exchange for purposes of implementing an automated andefficient trading process.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a table that defines the terminology utilized in a number ofinvestment industry products across numerous markets in registeredmutual funds, non-registered mutual funds, and institutional investmentportfolios.

FIG. 2 is a schematic diagram illustrating a prior art process fortrading by asset management firms (or money managers or sub-advisors)that generates “soft dollars.”

FIG. 3 is a schematic diagram illustrating a conventional process, asembodied in the prior art, for trading by asset managers in sub-advisedinvestment portfolios.

FIG. 4 is a schematic diagram illustrating an exemplary process forfacilitating a sponsoring organization's money management process as thesponsoring organization receives trade orders from the sub-advisor andselects the executing brokers, according to an embodiment of the presentinvention.

FIG. 5 is a schematic diagram illustrating an exemplary system andmethod for facilitating a sponsoring organization's money managementprocess utilizing a standard trading system, messaging engine,communications protocol, and communications network, according to anembodiment of the present invention.

FIG. 6 is a schematic diagram illustrating an alternative exemplarysystem and method for facilitating a sponsoring organization's moneymanagement process utilizing a standard messaging engine, communicationsprotocol, and communications network, according to an alternativeembodiment of the present invention.

FIG. 7 is a schematic diagram illustrating an exemplary order entrysystem and process, according to an embodiment of the present invention.

FIGS. 8A, 8B, and 8C illustrate exemplary logical rules in terms ofregulatory, prospectus, and board restrictions, and requirements for areal-time compliance engine, as implemented by an operating fund trust.

FIG. 9 is a schematic diagram illustrating the number and types ofrestrictions for a plurality of investment portfolios along with anexemplary computer process for implementing a compliance engine for aninvestment portfolio, according to an embodiment of the presentinvention.

FIG. 10 is a schematic diagram illustrating an exemplary ordermanagement system (OMS), according to an embodiment of the presentinvention.

FIG. 11A is a schematic diagram illustrating an exemplary high touch-lowtouch engine (HLE) system and process, according to an embodiment of thepresent invention.

FIG. 11B is a schematic diagram illustrating an exemplary structure of asub-advised investment management process, including the sponsoringorganization (advisor) and a plurality of sub-advisors (money managementfirms) providing asset management services across a plurality ofdifferent investment portfolios, according to an embodiment of thepresent invention.

FIG. 11Ci is a schematic diagram illustrating the exemplary design,functional modules, connectivity, data feeds, database and dataprocessing of the HiLo Engine (HLE) also referred to as the executiondiscretion assignment software engine (EDASE), according to anembodiment of the present invention.

FIG. 11Cii is an exemplary schematic diagram illustrating an alternativeembodiment of the sponsoring organization unified trading and controlsystem, in which trade orders originate (are entered) by one or aplurality of portfolio managers employed by one or a plurality of moneymanagement firms (sub-advisors) responsible for the investmentmanagement process for a sponsoring organization's investmentportfolios, according to an embodiment of the present invention. Theseorders are sent to the HiLo Engine, where they are categorized as hightouch or low touch according to the appropriate rules and routed forcompliance review by the advisor. Subsequently, the sponsoringorganization executes the low touch orders while the money managementfirm executes the high touch orders. Finally, the sponsoringorganization and money management firm engage in a reconciliationprocess of their trading activity with one another.

FIG. 11D is a schematic diagram illustrating an alternative embodimentof FIG. 11A according to which the HiLo Engine captures orders from thesub-advisor (money management firm), categorizes the order as high touchor low touch, routes the order for compliance review by the sponsoringorganization (advisor), and routes high touch orders to the sub-advisor(money management firm) for execution while routing the low touch ordersto the sponsoring organization for execution, according to an embodimentof the present invention.

FIG. 11E is a screen shot from an embodiment of the present inventionthat illustrates the HiLo Engine's exemplary graphical user interface(GUI) providing, as shown in a plurality of tests, activation boxes,measures, parameters, and pre set levels employed to categorize an orderas high touch or low touch, according to an embodiment of the presentinvention.

FIG. 11F is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed by a system administrator toinstitute a plurality of system-wide pre set levels provided to systemusers as a one-button implementation of complete sets of tests,measures, and parameters employed to categorize an order as high touchor low touch, according to an embodiment of the present invention.

FIG. 11G is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to institute a plurality ofexceptions to currently employed tests, measures, and parameters, suchas an exception by account or symbol, employed to categorize an order ashigh touch or low touch, according to an embodiment of the presentinvention.

FIG. 11H is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to create and name groups ofsymbols for use as exceptions to the currently employed tests, measures,and parameters used to categorize orders as high touch or low touch,according to an embodiment of the present invention.

FIG. 11I is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to transmit an order orplurality of orders from the sub-advisor to the HiLo Engine forcategorization of trade orders as high touch or low touch, according toan embodiment of the present invention.

FIG. 11J is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to communicate the results ofthe HiLo Engine's categorization of trade orders as high touch or lowtouch for one or a plurality or orders, according to an embodiment ofthe present invention.

FIG. 11K is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to transmit the order,placement, and decision details for an individual order, according to anembodiment of the present invention.

FIG. 11L is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to create roles for a pluralityof sponsoring organization, money management, or system administrationusers along with their user rights in the HiLo Engine, according to anembodiment of the present invention.

FIG. 11M is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to create a plurality of userorganizations, as sponsoring organizations or money managers(sub-advisors), in the HiLo Engine, according to an embodiment of thepresent invention.

FIG. 11N is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide a systemadministrator with account administration capabilities, including theactivation of an account's electronic submission of trade orders to theHiLo Engine, according to an embodiment of the present invention.

FIG. 11O is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide a summary of thecurrent tests, measures, and parameters used by sub-advisors (moneymanagement firms) to categorize orders as high touch or low touch,according to an embodiment of the present invention.

FIG. 11P is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide a search capabilityfor real-time and archival reporting and usage statistics for the HiLoEngine, according to an embodiment of the present invention.

FIG. 11Q is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide detailed usagestatistical reports summarizing the numbers and percentages of orderscategorized as high touch or low touch, according to an embodiment ofthe present invention.

FIG. 11R is a schematic diagram illustrating an exemplary structure forcreating user roles and assigning various permissions andresponsibilities to these user roles, according to an embodiment of thepresent invention.

FIG. 12A is a schematic diagram illustrating an exemplaryprice—cost—liquidity—quality engine, according to an embodiment of thepresent invention.

FIG. 12B is a schematic diagram illustrating an exemplary National BestBid and Offer (NBBO) for a security, along with an exemplary MidpointBetween Bid and Offer (MBBO) and an exemplary price improvement.

FIG. 12C is a set of tables that illustrate exemplary market parametersand resulting execution costs for a securities transaction with a singlestock price.

FIG. 12D is a set of tables that illustrate the selection of executingbrokers, the associated execution costs, and the resulting cost savingsfor three different methods for selecting executing brokers, includingan embodiment of the present invention, for a securities transactionoccurring at a single stock price.

FIG. 12E is a set of tables that illustrate exemplary market parametersand resulting execution costs for a securities transaction with multiplestock prices.

FIG. 12F is a set of tables that illustrate the selection of executingbrokers, the associated execution costs, and the resulting cost savingsfor three different methods for selecting executing brokers, includingan embodiment of the present invention, for a securities transactionoccurring at multiple stock prices.

FIGS. 12G(i) and 12G(ii) are a schematic diagram illustrating analternative embodiment of an exemplary system and method of the presentinvention creating a customizable, computerized, real-time analysis andoptimization process providing for and facilitating the selection ofexecuting brokers for a securities transaction in such manner as todetermine the executing brokers providing the lowest expected totalexecution cost for that transaction, according to an embodiment of thepresent invention.

FIG. 13 is a schematic diagram illustrating exemplary component modulesof a trade reconciliation system, according to an embodiment of thepresent invention.

FIG. 14 is a table that highlights the impact on the sub-advisoraccording to the prior art and according to an embodiment of the systemof the present invention, according to an embodiment of the presentinvention.

FIG. 15 is a list of exemplary sponsoring organizations offeringvariable insurance products.

FIGS. 16A and 16B are a list of exemplary money management firms (mutualfund companies) that currently provide or potentially could providesub-advisory services to sponsoring organizations through registeredmutual funds, unregistered mutual funds, and institutional investmentaccounts.

FIG. 17 is a list of exemplary firms providing order management systems(OMS).

FIGS. 18 A and 18B are a list of many exemplary executing broker firmsproviding trade execution services.

FIG. 19 is a schematic diagram illustrating an embodiment of the presentinvention in which a plurality of sponsoring organizations and aplurality of sub-advisors (money managers) utilize a plurality of ordermanagement systems (OMSs) to execute orders with a plurality ofexecuting brokers.

FIG. 20 is a schematic diagram illustrating an embodiment of the presentinvention in which a sub-advisor utilizes a plurality of manager ordermanagement systems to execute orders for a plurality of funds orinvestment portfolios with a plurality of executing brokers.

FIG. 21 is a schematic diagram illustrating an embodiment of the presentinvention in which a plurality of sponsoring organizations use astandard order management system, communications engine, communicationsprotocol, and communications network to communicate with a plurality ofsub-advisors (money managers) in order to execute orders with aplurality of executing brokers.

FIG. 22 is a schematic diagram illustrating a use case analysis of anexemplary implementation of a system, method, process, software, andstandards for facilitating the unified trading and control of asponsoring organization's money management process, according to anembodiment of the present invention.

FIG. 23 is a table providing a compilation of research demonstratingestimated exemplary savings available to fund trusts (groups of funds)showing the name of the fund trust, the total sub-advised equity assetsof the fund trust, the current execution costs for trading (in cents pershare), the annual turnover rate for the trust, the effective (total)turnover rate for the trust, and the number of shares traded in 2005 bythe trust. FIG. 23 also shows the estimated exemplary annual savings inmillions of dollars and basis points (b.p.) of annual savings realizedby the fund trust at execution costs of 1.00 cent per share. The datafor estimates in this table was compiled from publicly availabledocuments filed by each fund trust with the SEC, including theprospectus, annual report, and statement of additional information.

FIGS. 24A, 24B, 24C, and 24D are tables providing a compilation ofresearch calculating estimated exemplary annual savings for four popularfund trusts (group of funds) and the individual funds (with theirsub-advisor) comprising the trust, showing the annual cost savings (atan execution cost of 1.00 cent per share) both in dollars andpercentages. FIGS. 24A-24D also show an estimated exemplary beneficialeffect of the annual compounding of these recurring savings for a 1, 3,5, and 10 year period. The data for estimates in these tables werecompiled from publicly available documents filed by each fund trust withthe SEC, including the prospectus, annual report, and statement ofadditional information.

DETAILED DESCRIPTION OF THE INVENTION

An embodiment of the present invention provides a unified trading andcontrol system. FIG. 4 illustrates an exemplary sub-advisor (moneymanager) trading process 400 according to an embodiment of the presentinvention. The following numbered steps correspond to the arrows andtheir associated reference numerals shown in FIG. 4.

410) The sub-advisor 301 (or money manager) for each investmentportfolio provides the changes (buy and sell orders) in the sub-advisedfund or investment portfolio to the sponsoring organization 304 (actingas the advisor or administrator) as to the sub-advisor's decisionsregarding, for example: (1) employing the daily net cash contribution orwithdrawal (a decision usually made prior to the opening of trading);(2) changing the percentage, share, or dollar allocations of eachsecurity in the investment portfolio (decisions that can occur at thebeginning of and throughout the day); (3) changing how the current model(the percentage allocation by security totaling to 100%) compares to thetarget model; and (4) other money management and trading decisions.

Once these decisions (and the resulting orders) are determined by thesub-advisor or money manager 301, the sub-advisor calculates theresulting number of shares to buy or sell for each security andcommunicates the desired orders to the sponsoring organization 304. (Asneeded, selected orders could be executed or “worked” by the sub-advisor301 according to criteria agreed to by the sponsoring organization andsub-advisor.)

411) The sponsoring organization 304 maintains (separate and apart fromthe sub-advisors 301) its own group of relationships with executingbrokers 302. The sponsoring organization routes the orders to executingbroker(s) 302 of their own choice for execution, thereby enabling thesponsoring organization 304 to seek out and utilize the lowest costsource of execution, and thereby eliminate the “soft dollar” relatedbrokerage charges (and the resulting additional expense to the fundshareholders and plan beneficiaries) incurred when the sub-advisor isdirecting the trades. Through an embodiment of the present invention,the sponsoring organization 304 is able to select executing brokers 302providing the lowest possible execution cost (which presently could beone cent or less per share) consistent with regulatory requirements forBest Execution (best share price), thereby generating additional savingsfor the fund shareholders and plan beneficiaries and improving fundperformance.

413) The executing brokers 302 report the trade fills back to thesponsoring organization 304.

414) The sponsoring organization reports the trade fills back to thesub-advisor 301.

The sponsoring organization 304 also, in an embodiment of the presentinvention, implements a pre-trade compliance review and an immediatepost execution review to ensure the trade is compliant with prospectus,SEC, and board requirements. If the trade is not compliant with theseregulatory requirements, the sponsoring organization 304 (as advisor forregulatory purposes) is able to prevent the order from being executed orimmediately address any violations following execution.

FIG. 4 illustrates the areas of operational responsibility according toan embodiment of the present invention, as summarized in Table 1 below.

TABLE 1 Areas of Operational Responsibility Sub-advisors 301 Create Buyand Sell Orders Execute or “Work” Orders per Agreed Criteria SponsoringMaintain Network of Executing Brokers Organizations 304 Select ExecutingBrokers for Orders Seek Lowest Cost Execution Maintain Order RoutingTable Eliminate “Soft Dollars” from Trade Costs Pass Savings Through toShareholders or Beneficiaries Single and Comprehensive Compliance Systemand Methodology for all Sub-advisors to Utilize for Trading Pre and PostTrade Compliance Review Option Executing Execute Trades at LowestPossible Cost Brokers 302 Compete: Cost, Coverage, Liquidity, Technologyand Service

An embodiment of the present invention is shown in FIG. 5 as exemplaryprocess 500, whereby the sponsoring organization utilizes a standardsystem along with a plurality of other sponsoring organizations toimplement a standard method and process that enables the sub-advisorsand executing brokers, through the creation of a single operationalstructure with one sponsoring organization, to easily and rapidlyduplicate that same operating structure with a plurality of sponsoringorganizations across multiple industries. This standardizationeliminates the potential for unmanageable complexity created forsub-advisors and executing brokers as a multiplicity of sponsoringorganization select and implement their own individual method andprocess utilizing a wide variety of vendors, systems, procedures,communications engines, communications protocols, and communicationsnetworks.

FIG. 5 illustrates the exemplary process 500 according to an embodimentof the present invention. The process 500 works in the following stepscorresponding to the arrows and their associated reference numeralsshown in FIG. 5.

510) A plurality of sub-advisors 301 direct orders to the sponsoringorganization 304 through the communications network 502.

511) The sponsoring organization's order management system 503 receivesa plurality of orders from the sub-advisor 301.

512) The sponsoring organization's order management system 503 utilizesa communications engine 504 that incorporates a communications protocol505 that translates each order into a usable format.

513) Each order is directed to the compliance engine 506 that reviewsthe order with respect to prospectus, board, and SEC regulations andrequirements.

514) If a violation occurs (Violation=Yes), the order is routed to thesub-advisor 301 for further evaluation and review.

515) If a violation does not occur (Violation=No), the order is routedto the order management system (OMS) 503, which, utilizing thecommunications engine 504 and communications protocol 505, translatesthe order into a format acceptable to the executing brokers 202.

516) The sponsoring organization's order management system 503 routesthe order to the executing brokers 202 through the communicationsnetwork 502.

517) The executing broker 202 receives the order and executes the trade.

518) The executing broker 202 sends the trade fills report to thesponsoring organization 304 and sub-advisor 301 through thecommunications network 502.

519) The sponsoring organization 304 receives the trades fill report.

520) The sub-advisor 301 receives the trade fills report.

The standard system 501 for facilitating the sponsoring organization's304 unified trading and control of their money management processconsists of the following components in an integrated format: ordermanagement system 503, communications engine 504, communicationsprotocol 505, and communications network 502. An alternative embodimentof the present invention with an alternative standard system 507consists of the following components in an integrated format: ordermanagement system 503, communications engine 504, and communicationsprotocol 505.

An alternative embodiment of the present invention is shown in FIG. 6 asexemplary process 600, whereby the sponsoring organization 304 utilizesa variance on the common standard system with other sponsoringorganizations to provide a standard method and process that enables thesub-advisors 301 and executing brokers 202, through the creation of asingle operational structure with one sponsoring organization, to easilyand rapidly duplicate that same operating structure with a plurality ofsponsoring organizations across multiple industries. The likelihood ofincreasing compatibility of systems over time, and increased industryacceptance of the system of the present invention, could potentiallyease the standardization requirement and allow these additional optionsto become feasible. The standard system 601 and 602 comprises thefollowing standard components in an integrated format: communicationsengine 504, communications protocol 505, and communications network 502.An alternative embodiment of the standard system 601 consists of acommunications engine 504 and communications protocol 505. Finally, itis conceivable that, over time, communications integration across theindustry evolves to the point where the standard consists solely of acommunications protocol 505.

The present invention, in the embodiments illustrated in FIGS. 4, 5, and6, provides a simpler process, lower trade execution costs, and enhancedpre-trade trade compliance and prevention of violations in trading bythe sub-advisor, whereby the sponsoring organization (the advisor withdirect regulatory responsibility for the investment portfolios), not thesub-advisor or money manager, exercises controls over the sub-advisortrading process and where and how the trades are executed (the orderflow) on behalf of their fund shareholders and plan beneficiaries.

I. Exemplary System and Process of the Present Invention

The present invention provides a system, method, process, software, andstandards for achieving a desired social utility of improving regulatorycompliance, risk management and fiduciary control while also generatingsignificant and recurring cost savings (and the resulting improvedinvestment performance) for fund shareholders and plan beneficiaries.

A. System

An exemplary system is based on a number of components and includes anorder entry system, compliance engine, order management system, a hitouch-low touch engine (HLE), a price—liquidity—cost—quality engine(PLCQ), trade reconciliation system, communications engines,communications protocols, and communications networks, as furtherdescribed below.

1) Order Entry System

FIG. 7 is a schematic diagram illustrating an order entry system andprocess 700, according to an embodiment of the present invention. Theprocess 700 works in the following steps corresponding to the arrows andtheir adjacent reference numerals in FIG. 7.

725) The order entry system is a computer-based graphical user interface(GUI) and associated software program(s) that can be customized to fitthe preferences of the individual portfolio manager and his or herpersonal style of managing money. (The individual who is the portfoliomanager for the investment portfolio is typically an employee of themutual fund company or institutional asset manager acting assub-advisor.) The order entry GUI 701 displays, among other data, theinvestment portfolio's total value, cash, and securities along with thenumber of shares, share price, and dollar value of each position 702.FIG. 7 shows an exemplary order entry GUI 702 providing this exemplarydata. The order entry system provides important functionality in tworespects:

a) Daily Net Cash: The order entry system provides data on the daily netcontribution or withdrawal of cash from the investment portfolio, andenables the portfolio manager to implement decisions such as maintainthis cash, sell specific securities to cover any net withdrawal, buycertain securities, buy/sell the current model, buy/sell the targetmodel, or buy/sell as to move the current model closer to the targetmodel.

b) Order Execution Options: The order entry system provides options forthe order type for each trade, for example: market, limit, good toclosing, and fill or kill. Also, the system can allow a portfoliomanager to freeze a security's current shares, that is, exclude thesecurity from any and all future trading.

726) The portfolio manager utilizes the order entry system to implementthe buy and sell orders for securities through the creation of a tradeticket 703. The responsibility for entering the buy and sell orders intothe order entry system remains with the sub-advisor (the portfoliomanager or their associated trading desk/operations group) in anembodiment of the present invention. FIG. 7 shows an exemplary tradeticket 703 accessible through the order entry GUI.

727) As the order is entered by the sub-advisor (who hits, e.g. ENTER onthe order entry screen), the order entry system calculates the necessarynumber of shares and dollars for each security to buy or sell. Giventhat the order is determined at the investment portfolio level, theorder entry system does not have nor require access to information atthe account level for individual fund shareholders or planbeneficiaries. The record of the order is entered into the trade blotter704. Thus, for example, when an asset manager increases the allocationby 1% in IBM in a $100 MM investment portfolio, the result is anaggregate buy of $1 MM of IBM. Given a price of $80 per share for IBM,the buy order is 12,500 shares. This process is repeated for each buyand sell order implemented by the portfolio manager.

728) The order is routed to the compliance engine 506.

729) If a violation occurs (Violation=Yes), the order is routed to theorder entry GUI 701 for review and evaluation by the portfolio manager,trade desk and/or compliance officer.

730) If a violation does not occur (Violation=No), the order is routedto the order management system (OMS) 503,

731) The order management system 503 utilizes the order routing table705 to direct the order for execution.

732) The order routing table 705 directs the order to, among othervenues, a market maker 706, an electronic commerce network (ECN) 707, adirect market access (DMA) vendor 708, or an exchange 709.

733) Once the order is executed, the trade fill report is sent back tothe order management system 503.

734) The order entry GUI is updated with the revised positions, numberof shares, price per share, values, and cash data. FIG. 7 shows anexemplary screen image of the updated order entry GUI 710.

2) Compliance Engine

The compliance engine, also referred to as a rules-based complianceviolation detection engine, is a graphical user interface (GUI) andassociated software program(s) linked to a computerized rules-basedlogic engine that enables each buy or sell order (or combinations of buyand sell orders) to be analyzed in real-time, according to a set ofcustomizable logical rules, such as rules specifying that foreignsecurities cannot exceed 15% of a portfolio's total value or that theportfolio cannot hold the securities of the sub-advisor nor thesponsoring organization. The compliance analysis occurs both prior toand immediately following the execution of each trade (or group oftrades) as well as at the close of each trading day for compliance withprospectus, regulatory, and board requirements. Any pending order orgroup of pending orders that may result in any type of violation ofsecurities laws, account restriction or prohibited transaction are heldin suspense (and not executed) and tagged with a warning flag, and aviolation notice is sent to the compliance group, portfolio manager, andtrade/operations group. The order or group of orders in question,subsequent to the review of the violation, may be amended, canceled, orapproved for execution. Trades (or groups of trades) that are executedare also analyzed to ensure that the resulting trades do not violate anyrequirements for the portfolio. (Post-execution price changes that occurlater during the trading day could subsequently trigger a violation notpresent at the time of execution.) Approved orders are routed to theorder management system (OMS) to begin the execution process.

FIGS. 8A, 8B, and 8C illustrate exemplary logical rules in terms ofregulatory, prospectus, and board restrictions and requirements for areal-time compliance engine, as specified in the disclosure documents ofan operating fund trust.

FIG. 9 is a schematic diagram illustrating an exemplary compliancereview process 900, according to an embodiment of the present invention,for implementing a compliance engine for a plurality of investmentportfolios. In the instance for this operating fund trust, there are atotal of 274 individual restrictions that could apply to all, many, or asingle investment portfolio or fund. FIG. 9 shows the actualrestrictions by category for five of the fund trust's investmentportfolios, with the number of the individual restrictions shown in abreakdown of five categories, ranging from 41 to 63 compliance andregulatory restrictions per investment portfolio.

The exemplary compliance review process 900 works as described in thefollowing steps corresponding to the arrows and their adjacent referencenumerals as shown in FIG. 9.

925) An order for an investment portfolio 902 is entered into the ordermanagement system 503, which records the transaction in the tradeblotter.

926) The order management system 503 routes the order to the complianceengine 506 for pre-trade review.

927) The compliance engine 506 matches the order to the restrictions forthat particular investment portfolio 903 and conducts an analysis todetermine if the order will result in a violation of any applicablerestriction. Exemplary restrictions and their frequencies areillustrated in table 901 of FIG. 9.

928) If Violation=Yes 904, the order is not executed and requires areview.

929) The rejected order is then routed into the order evaluation process905.

930) The reviewed order evaluation process 905 gathers input from atleast one of the compliance group 908, portfolio manager 907, and thetrading/operations group 906. The order may be canceled at this point,revised, or allowed to be executed in its existing form 909.

931) If the order is to be executed, the reviewed order 909 is routed tothe order management system 503 for updating the trade blotter andresubmission to the compliance engine 506.

932) If, in step 927, Violation=No 910, the order is routed to the ordermanagement system 503.

933) The order management system 503 routes the order for execution 911.

934) The order is executed and the trade fill report is generated.

935) The trade fill report is routed back to the compliance engine 506for post trade and ongoing compliance review and analysis.

Overall, in an embodiment of the present invention, the sponsoringorganization (the advisor with direct regulatory responsibility for theinvestment portfolios) has the option, which is not available in theprior art, to review all pending orders and prevent violations ofprospectus, regulatory, and board requirements prior to the orders beingexecuted. The sponsoring organization, in an embodiment of the presentinvention, also has the option, which is not available in the prior art,to review all executed trades on a real-time basis to preventpost-execution violations of prospectus, regulatory, or boardrequirements. Finally, for the first time, the sponsoring organization,as advisor or plan administrator, has the means to place each fund oraccount and each sub-advisor on the sponsoring organization'simplementation of a common, centrally operated compliance engine,process and set of restrictions (as opposed to each differentsub-advisor or money manager performing compliance reviews on as manydifferent systems.) The sponsoring organization, as advisor to the fundor administrator to the pension plan, has a regulatory (SEC)responsibility to ensure compliance of its funds and plan with allregulatory requirements and to certify, in writing, that theseinvestment portfolios do not violate the securities laws. Thus, incontrast to the prior art, the present invention enables the advisor oradministrator to fulfill such responsibilities prior to execution of anorder, enables an immediate review of all executed trades, and allows asingle standardized compliance review process to be implemented acrossall sub-advisors and the funds or accounts.

The present invention therefore empowers the advisor or administrator toproperly fulfill their regulatory responsibility by their preventing theexecution of orders that violate securities laws, account restrictionsor prohibited transactions.

3) Order Management System

FIG. 10 is a schematic diagram illustrating the order management system(OMS) 503, according to an embodiment of the present invention. Theorder management system is a computerized processing system with agraphical user interface (GUI) and associated software program(s)enabling the organization conducting the trading activity to maintain areal-time trade blotter for all their pending orders and executedtrades. An order management system can comprise one or more of thefollowing modules: portfolio modeling engine 1002, order entry 700,trade blotter 704, order routing table 705, and communications engine504. The portfolio modeling engine 1002 enables a money manager toevaluate “what if” scenarios with the portfolio prior to implementingany trade orders. The trade blotter 704 enables real-time monitoring ofall trading activity such as open orders 1003, cancel/correct orders1004, and executed orders 1005. The OMS 503 enables the utilization ofvarious trading strategies, keeping track of positions, P&L, orderacceptance and release, sending IOI's (Indications of Interest), andamending orders. The order routing table 705 is a central database formaintaining the instructions for directing orders to selected executingbrokers. The communications engine 504 is used to create data formatsacceptable to other order management systems.

The order management system 503 also provides logical workflow solutionsto assist in maintaining proper communication between the various front,middle, and back office functions and systems for allocations of largeorders as well as keeping track of partial fills of trade orders.Finally, the order management system 503 utilizes market data sources1001 and provides robust and flexible compliance, regulatory and auditreporting capabilities 1006, including NYSE Rule 123, OATs, ACT, ShortSale, and Limit Order Handling Rule reports, as well as capturing,time-stamping, and archiving all activity for timely reconciliation andtrouble-shooting.

The order management system 503 functions as described in the followingsteps, which correspond to the arrows and their associated referencenumerals shown in FIG. 10.

1020) The order management system 503 links with a plurality ofreal-time and batch market data feeds 1001.

1021) The portfolio manager utilizes the portfolio modeling engine 1002to perform “what if” analyses for the investment portfolio and entersorders into the order entry module 700.

1022) The orders are recorded in the trade blotter 704.

1023) The trade blotter 704 enables views of the trade data such as openorders 1003, cancel and correct orders 1004, and executed trades 1005.(The compliance review process, as illustrated in FIG. 9, can occur atthis point in the process, but is not shown.)

1024) The orders are sent to order routing table 705 for selectingexecuting brokers and receiving directions to those executing brokers202.

1025) The order routing table 705 transmits the order to thecommunications engine 504, which translates the order into a formataccepted by executing brokers 202.

1026) The order is routed to the communications network 502.

1027) The communications network 502 routes the order to the selectedexecuting broker(s) 202.

1028) The executing broker(s) execute the order and send the trade fillreport(s) through the communications network 502.

1029) The communications network 502 directs the trade fill report backto the order management system 503 and the communications engine 504translates the order into a format used by the order management system503.

1030) The trade fill report updates the trade blotter 704 with thedetails of the trade fill report(s).

1031) The trade report data is used to update the portfolio holdings forthe order entry module 700.

1032) The order management system 503 submits transaction reporting 1006to the appropriate industry transaction processing and reportingentities.

4) Hi Touch-Low Touch Engine (HiLo Engine or HLE)

The hi touch-low touch engine, which may also be referred to as the highlow engine, HiLo Engine, HLE, or execution discretion assignmentsoftware engine (EDASE), is a graphical user interface (GUI) andassociated software program(s) linked to a computerized rules-basedlogic engine that enables each buy or sell order (or combinations of buyand sell orders) to be analyzed in real-time, according to a set ofcustomizable logical rules, to: (1) determine the expected market impactof an order and categorize an order as high touch or low touch; and (2)accordingly route the low touch orders for execution by the sponsoringorganization and the high touch orders for execution by the sub-advisor.In a preferred embodiment, these logical rules can be adjusted inreal-time.

Orders are categorized as high touch or low touch orders depending ontheir expected market impact. For example, the immediate execution inthe market of an order to buy 500,000 shares for an equity thatcurrently trades 100,000 shares daily at $40.00 per share will almostcertainly result in an increase in the share price of that equity. Assuch, the large order could drive up the price of the equity by severaldollars per share. Once the execution of that order is completed, thetrading volume will likely return to its original 100,000 shares per daytrading volume and the share price could return to the pre-trade levelof $40.00 per share. A possible result is that the purchasers of the500,000 shares will experience an immediate loss on their investment.The phenomenon of driving up the share price through a very large buyorder or lowering the share price through a very large sell order isreferred to as “market impact.” It is usually desirable to “work” orderswith significant expected market impact. By “working” orders, tradersare able to utilize a variety of tools, such as institutional tradingdesks, trade algorithms, crossing networks, dark pools of liquidity,sending IOIs (indications of interest), and other such techniques(including manually watching the market for the appropriate times toexecute small portions of the total order) to eliminate or reduce theexpected market impact of a large order. The orders that require specialhandling (“working”) are referred to as “high touch trades.”

On the other hand, there may be situations in which an order representsa small percentage of a measure such as daily trade volume. For example,an order to buy 1,000 shares for an equity trading several millionshares daily will have little or no expected market impact on the priceof that equity. Once entered, such an order is transmitted, executed,and reported as the electronic systems and computers (also referred toas “black boxes”) communicate with each other with little or no humaninteraction. The orders with low or no expected market impact arereferred to as “low touch trades.”

Finally, once an execution strategy is selected for a high touch order,the order may be broken up into several smaller orders that are executedover a period of time. These smaller orders may now qualify as low touchorders, as each individual order, when executed over a period a time,may now result in little or no market impact.

An embodiment of the present invention provides a system and method for:

(1) Enabling the sponsoring organization, as advisor, to implement, forthe first time, its own centralized, real-time, rules-based pre and posttrade compliance process across all of its sub-advisors and thesub-advisors' trading activity in order to prevent the execution of atrade order by a sub-advisor that would otherwise result in a violationof the securities laws, account restrictions, or prohibitedtransactions; and

(2) Enabling the sponsoring organization, for the first time, to assignresponsibility (discretion over the decisions related to how, when, withwhom and the cost that a trade order is executed) for executing a tradeorder based on a rules-based analysis using real-time and historicalmarket data to determine the expected market impact of a trade order tobuy or sell securities, to the sub-advisor (money management firm) hiredto manage an investment portfolio or to the advisor (sponsoringorganization) of that investment portfolio.

(3) Implementing a standard and specialized communications methodologyand system inclusive of a specialized communications protocol as acommunications message delivery method, a specialized communicationsformat for creating messages, a dedicated communications network forsending and receiving messages, specialized message transferfacilitation software and dedicated computer processor for supportingthe message creation and delivery function.

The current technology available for sending trade related messages, asrepresented in the prior art, has several significant deficiencies thatresult in the prior art's inability to support the functionalityrequired by the HiLo Engine. As a result, an exemplary HiLo Engine ofthe present invention provides specialized communication protocols,communications format, communications network, message transferfacilitation software and dedicated computer processors to achieve thedesired functionality. The prior art is represented by an industry-widestandard message protocol and format that is available to all firms inthe securities trading industry. This standard, called the FinancialInformation eXchange (FIX) format and protocol, is employed by tradingsystems around the globe to transmit trade related messages among moneymanagement firms and executing brokers. However, that prior art, asembodied by FIX, does not, and cannot be modified to, support thefunctionality requirements of the HiLo Engine, as follows:

(1) The FIX message formats do not support the high touch versus lowtouch decisions generated by the HiLo Engine.

(2) The FIX message formats do not support the Algo, TRO, or Algo TROdecisions generated by the HiLo Engine.

(3) The FIX message formats do not support the compliance statusmessages, such as hold orders or release orders, generated by the HiLoEngine.

(4) The FIX message communications methodology requires that the moneymanagement firm maintain a FIX session (an open and operationalcommunications loop) with each executing broker selected by each oftheir sponsoring organizations. Most large money management firmsmaintain a list of twenty or fewer executing brokers with whom theymaintain an open FIX session. The deficiency with the prior art FIXsession technology is that, since the money management firm does notknow in advance the sponsoring organization's selection of the executingbroker for the low touch orders, the money management firm thus needs tomaintain hundreds of open FIX sessions with the universe of executingbrokers. Such an expansive communications structure, via FIX sessions,is simply not feasible given the limitations of the current FIX protocoland technology.

(5) Many firms implement their own unique “dialect” as to the specificimplementation and of the FIX protocol in one of its many versions thathave been released over time along with modifications customized to thatfirm's specific business needs. These variations in FIX dialect resultin increasing the challenges associated with the already difficult andpotentially troublesome process of matching an order directed by thesponsoring organization to an executing broker with the FIX sessionoperated by the sub-advisor searching for results related to thatspecific order. As a result, these orders and their relatedcommunications could easily get lost in the vast global volume ofFIX-based transmissions.

Overall, given the limitations inherent in the prior art, an embodimentof the HiLo Engine of the present invention, in order to properlyachieve the required functionality, implements a specializedcommunication protocol, communications format, communications network,message transfer facilitation software, and dedicated computerprocessors. The communications protocol utilized in the presentembodiment of the HiLo Engine (HLE) incorporates a web services-basedmessaging system between all participants. This messaging system isfast, effective and reliable. The present embodiment also protects thedatabase integrity and security for systems employed by all participantsas these user databases avoid any direct integration with the HiLoEngine (HLE) or with other system of other users. Future embodiments ofthe present invention could employ various database integration methodsas new technology develops.

An embodiment of the present invention, referred to as the hi touch-lowtouch engine or “HiLo Engine” is a computer system that employs aplurality of rules to categorize trade orders, in real-timeincorporating real-time market data, as high touch orders, whereby atrade order requires significant time and effort by a trader and wherethe order is expected to have a significant market impact on the priceof the stock; or low touch orders, whereby the order does not requiresignificant time and attention by a trader and where the order is notexpected to have any significant market impact. As such, the HiLo Engineassigns responsibility (discretion) for the execution of high touchorders to the sub-advisor (money management firm), who is able tocarefully “work” the order by selecting one or more executing venues orbrokers to complete the transaction with minimal market impact.Likewise, the HiLo Engine assigns responsibility (discretion) forexecution of low touch orders to the sponsoring organizations to executeby selecting one or more executing venues or brokers as to minimizeexecution costs and improve the quality of execution (rapid speed ofexecution and realized price improvement) for those orders. The rulesfor categorization are flexible and are established and revised byeither the money management firm or the sponsoring organization as areal-time process, according to their agreed procedures.

The HiLo Engine, as an embodiment of the present invention, incorporatesfunctions as a real-time, rules-based market liquidity analytical tool;an access and request facility to real-time market data and specifiedmarket data packages; an order discretion assignment decision-makingengine; a manual user override of order discretion assignment decisionscapability; a rules creation, updating and rules-exception depository; arules and rules-exception testing facility; an extensive real-timereporting system; a rules, data, decision and order execution discretionassignment audit facility; a multi-level user and organizational accessand rights control and updating facility; an account activationfacility; a multiple venue message transfer facilitator connectivitysystem; and an implementation of specialized message formats. The HiLoEngine integrates a plurality of sub-advisors (money management firms),sponsoring organizations and execution venues and brokers into a singleand effective communication, compliance, and low cost order routing andexecution network. The HiLo Engine's communications network also enablessponsoring organizations to benefit from a plurality of additionalcompliance and regulatory supervisory capabilities that result insignificantly improved business processes including: lower brokeragecosts and greater control over the process of replacing one sub-advisorto a fund or account with another sub-advisor; lower brokerage costsresulting from model portfolio asset allocation rebalancing activity;improved governance process through reporting of real-time andhistorical holdings, activity, brokerage and other costs; enhancedreporting on asset segregation requirements related to forwardsettlements on derivative positions; and stronger, real-time,enterprise-level risk management controls.

The percentage of orders categorized as high touch or low touch dependson the parameters utilized in the rules employed by the HiLo Engine.Given that many sponsoring organizations trade billions of equity sharesannually, it is likely that most of this order flow is categorized aslow touch, executed by the sponsoring organizations and resulting insubstantial annual savings in brokerage costs and improved investmentperformance for their investment portfolios.

FIG. 11A is a schematic diagram illustrating an exemplary HiLo Engine(HLE) system and process 1100, according to an embodiment of the presentinvention. The process 1100 works as described in the following steps,which correspond to the arrows and their adjacent reference numeralsshown in FIG. 11A.

1125) The sub-advisor 301, sponsoring organization 304, and board oftrustees 1101 determine the rules for categorizing an order as hightouch or low touch.

1126) The rules for categorizing an order as high touch or low touch areinput into the trade routing rules database 1102. These rules can bechanged in real-time.

1127) The HiLo Engine (HLE) 1105 utilizes the rules from the traderouting rules database 1102 to categorize orders as high or low touchorders.

1128) The HiLo Engine (HLE) 1105 incorporates a real-time feed of marketdata 1104 for use in analyzing and determining the expected marketimpact of an order.

1129) The portfolio manager 1103, using the sub-advisor's ordermanagement system 503 SA, enters an order that is routed, via thesub-advisor routing loop, to the HiLo Engine 1105 for real-time analysisand categorization as a high touch or low touch order. Although the HiLoEngine 1105 is illustrated as located within the unified trading andcontrol system, one of ordinary skill in the art would appreciate thatthe HiLo Engine 1105 could be located elsewhere, such as at thesub-advisor 301 or sponsoring organization 306.

1130) The HiLo Engine 1105 determines the expected market impact oforders received from the sub-advisor order management system (OMS) 503SA and categorizes orders with significant expected market impact as“high touch” orders 1106.

1131) The high touch order 1106 is further categorized as orders to be“worked” by a block trading desk, crossing system, matching system, darkpool of liquidity, or some other form of institution to institutiontrading system or exchange 1109. These worked orders are routed forreview by the sponsoring organization's compliance engine 506 and, onceapproved, are ready for execution.

1132) As an alternative to step 1131, the high touch order 1106 isdivided into a series of smaller orders 1108 by a trading algorithm or aset of manual decisions 1107.

1133) The trading algorithm or set of manual decisions divides the orderinto a series of smaller orders 1108 for execution over a period oftime.

1134) Each of the smaller orders 1108 resulting from the original hightouch order are re-routed to the HiLo Engine 1105 via the sub-advisorre-routing loop.

1135) The HiLo Engine 1105 evaluates the re-routed smaller orders 1108and categorizes the orders with significant market impact as high touchorders 1109.

1136) High touch orders 1109, from both the original and re-routedorders, are directed via auto routing 1110 to the sub-advisor's ordermanagement system 503 SA.

1137) The sub-advisor's order management system 503 SA receives the hightouch order 1109 and selects the executing broker(s) 202.

1138) The sub-advisor order management system 503 SA routes the hightouch orders to the executing broker(s) 202 for execution.

1139) Once the orders are executed by the executing brokers 202, thetrade fill data for the high touch trades 1106 is routed to thesub-advisor order management system 503 SA.

1140) The sub-advisor order management system 503 SA determines, whenapplicable, the allocation of shares for the sponsoring organization androutes the trade allocation data along with the trade fill data (fortrades not requiring a special allocation) for the high touch trades tothe sponsoring organization's order management system 503 SO.

1141) The sponsoring organization's order management system 503 SOroutes the trade allocation data for the sponsoring organization'sallocation of shares of the high touch trade and the trade fill data forthe high touch trades (not requiring a special allocation) to thesponsoring organization's trade reconciliation system 1117. Steps 1130through 1141 constitute the high touch order processing loop.

1142) Returning to steps 1129 and 1134, when the high touch-low touchengine 1105 receives orders from the sub-advisor order management system(OMS) 503 (as either the original and re-routed orders) that itdetermines will have little or no significant expected market impact,the hi touch-low touch engine 1105 categorizes those orders as “lowtouch” orders 1111 that can be processed as “electronic” or “black box”orders, which computer systems can execute with virtually no humanintervention. The “low touch” order can be either original orders orre-routed orders from the sub-advisor order management system 503 SA.

1143) The HiLo Engine 1105 directs trades that do not require a traderotation order to the sponsoring organization 304. For example, a singleorder for a single fund would not require a trade rotation order.

1144) The HiLo Engine 1105 routes trades requiring a trade orderrotation to the trade order rotation engine 1112 in order to determine atrade order rotation between the sub-advisor 301 and the sponsoringorganization(s) 304 and 1116. For example, when an asset manager placesa plurality of orders in a given security for execution across aplurality of investment portfolios, trade order rotation is required.Such trade order rotation is preferably random. The trade order rotationcould be, for example, a defined procedure comprising random selection,sequential selection, or algorithmic random selection.

1145) The trade order rotation engine 1112 prepares trade rotationinstructions 1113 for the sub-advisor 301.

1146) The trade rotation instructions 1113 are communicated to thesub-advisor's order management system 503 SA via auto routing 1110(along steps 1146 a and 1146 b).

1147) The trade rotation engine 1114 determines the trade rotation orderbetween a plurality of sponsoring organizations, such as the sponsoringorganization 304 and any number of additional sponsoring organizationsas represented by sponsoring organization (SO_(x)) 1116. The traderotation order could also be determined as a single trade rotation orderbetween the sub-advisor 301 and sponsoring organizations 304 and 1116.

1148) The trade rotation engine 1114 prepares trade rotationinstructions 1115 for the sponsoring organizations 304 and 1116.

1149) The trade rotation instructions 1115 are communicated to thesponsoring organizations 304 and 1116.

1150) The trade orders are routed to the sponsoring organization's ordermanagement system (OMS) 503 SO.

1151) The sponsoring organization's order management system (OMS) 503 SOroutes the orders for review by the sponsoring organization's complianceengine 506 and, once approved, selects the executing brokers 202 androutes the orders through the communications network 502 for execution.

1152) The communications network 502 directs the orders to thedesignated executing brokers 202 for execution.

1153) The executing brokers 202 execute the trade and report the tradefills back to the communications network 502.

1154) The communications network 502 reports the trade fill reports backto the sub-advisor's order management system (OMS) 503 SO.

1155) The sponsoring organization's order management system (OMS) 503 SOroutes the orders to the sponsoring organization's trade reconciliationsystem 1117. Although, for clarity, FIG. 11A shows the trade compliance,execution, and reconciliation process (steps 1150-1155) only forsponsoring organization (SO 1) 304, the same or similar process wouldoccur for the additional sponsoring organizations (SO_(x)) 1116. Steps1142 through 1155 constitute the low touch order processing loop.

FIG. 11B is a schematic diagram illustrating an exemplary structure of asub-advised investment management process whereby a sponsoringorganization 304, as advisor, hires and supervises a plurality ofsub-advisors 301 to manage, for example, large cap growth, large capvalue, mid cap growth, and small cap growth investment portfolios. Inthe prior art of this industry structure, the sub-advisors areresponsible for making investment decisions and the buying and selling(trading) for the securities held by these investment portfolios.

FIG. 11Ci is a schematic diagram illustrating the exemplary design,functional modules, connectivity, data feeds, database and dataprocessing of the HiLo Engine (HLE), a computer processor and softwareapplication also referred to as the execution discretion assignmentsoftware engine (EDASE), according to an embodiment of the presentinvention.

FIG. 11Ci illustrates a sponsoring organization 304 and a plurality ofsub-advisors 301 maintaining a single connection, through the EDASE'sexternal communications network 11CiJ, to the EDASE's centralconnectivity point 11CiA. The central connectivity point 11CiA enablesthe sponsoring organizations 304 and sub-advisors 301 to utilize asingle connection to the EDASE 1105, regardless of how many other oftheir associated users (a plurality of sub-advisors 301 for a sponsoringorganization 304 and a plurality of sponsoring organizations 304 for asub-advisor 301). This single connection 11CiA to all associated usersis a point of novelty for the EDASE 1105.

The central connectivity point 11CiA represents a computer processor andsoftware application that receives all communication to and from thesponsoring organization 304 and the sub-advisors 301 as input from thegraphical user interface (GUI) 11CiL. The graphical user interface 11CiLis the primary means through which users send and receive communicationsfrom the EDASE 1105. The graphical user interface 11CiL represents: a)EDASE's specialized graphical user interface; b) in an alternativeembodiment, the integration of the EDASE's messages into the graphicaluser interface of the sponsoring organizations order management systemSO 503 and sub-advisors order management system SA 503; or c) acombination of both the EDASE 1105 or the user's order managementsystem's graphical user interfaces, depending on the desired function.

The central connectivity point 11CiA, using the EDASE's internalcommunications network 11CiK, routes or receives the messages from thetranslation module 11CiB, a computer processor and software applicationresponsible for: a) normalizing all inbound communications messages fromto the EDASE's 1105 internal format and routing the normalized messageto the appropriate EDASE 1105 functional module; and b) translating alloutbound communications to the EDASE's 1105 specialized message formatsand routing the outbound messages to the central connectivity point11CiA. The translation module 11CiB also, using the internalcommunications network 11CiK, requests and sends updates to the EDASE'sdatabase module 11CiI for purposes of updating the EDASE's 1105 databaserecords.

The translation module 11CiB reads the message header and routes themessage to the appropriate EDASE 1105 functional module, as follows:

The admin module 11CiC represents a computer processor and softwareapplication that, through the EDASE's internal connectivity network11CiK, accepts messages from the EDASE's graphical user interface (GUI)11CiL and enables users to set up user roles and permission schema,including users and viewers for the sponsoring organization 304,sub-advisors 301, and EDASE administrator 11CiM. The admin module 11CiCaccepts a data feed from the sponsoring organization's order managementsystem 503 SO to set up, modify or remove investment portfolios in theEDASE 1105. The admin module 11CiC also enables users to activatesubmission of orders from the investment account to the EDASE 1105. Theadmin module 11CiC, using the internal connectivity network 11CiK,requests and sends updates to the EDASE's database module 11CiI forpurposes of updating the EDASE's 1105 database records.

With reference to FIG. 11R, the HiLo Engine supports a wide variety ofusers and their required functionality needs. There are three categoriesof users: sponsoring organizations, money management firms(sub-advisors), and system administrators.

The HiLo Engine, to properly support the sponsoring organizations, moneymanagement firms and system administrative functions, provides sevenuser roles as defined below.

The money management firm (sub-advisor) has three roles, includingadministrators, traders, and viewers.

Administrator: The money manager administrator performs the followingfunctions:

-   -   Adds, changes rights and removes trader and viewer users;    -   Controls rule activation, governing parameters and rule        exceptions;    -   Create exception rules for accounts, securities or groups of        securities; and    -   Activates and deactivates accounts to submit orders to the HiLo        Engine.

Trader: The trader is authorized to interact with the HiLo Engine in thenormal trading process supporting sub-advised accounts, includingsubmitting orders, cancel requests and overrides of touch levels.Traders (similar to the money management firm administrator) are alsoable to:

-   -   Controls rule activation, governing parameters and rule        exceptions; and    -   Create exception rules for accounts, securities or groups of        securities.

The money manager trader is not able to activate and deactivate accountsto submit orders to the HiLo Engine. The money management firmdetermines whether the money manager administrator money manager traderor both are responsible to create and maintain the HiLo Engine rules andparameters.

Viewer: The viewer is authorized to utilize the HiLo Engine's reportingfunctionality for the sub-advisor's sub-advised accounts.

The sponsoring organization has two roles, including administrator andviewer.

Administrator: The sponsoring organization administrator is the singleuser that performs the following functions:

-   -   Adds and removes viewers; and    -   Assigns money management firms (sub-advisors) to the sponsoring        organization's accounts.

Viewer: The viewer is authorized to utilize the HiLo Engine's reportingfunctionality for the sponsoring organization's sub-advised accounts.

The system administrator has two roles, including administrator andviewer.

System Administrator: The system administrator has the followingfunctionality:

-   -   Controls the parameters for the pre set levels;    -   Add sponsoring organizations and money management firms to the        HiLo Engine (HLE);    -   Create and remove users within sponsoring organizations and        money management firms; and    -   Assign money management firms to accounts.

Viewer: The viewer enables system personnel to utilize the HiLo Engine's(HLE). Reporting functionality.

The order entry module 11CiD represents a computer processor andsoftware application that, through the EDASE's internal connectivitynetwork 11CiK, accepts messages from the EDASE's graphical userinterface (GUI) 11CiL, or in an alternative embodiment, is integrateddirectly with the sponsoring organization's order management system SO503 and the money management firm's order management system SA 503, andenables users to engage in transactions related to the entry andexecution of orders by the EDASE 1105 through the following functions:submission of a single order or group of orders, order cancel requests,order cancel request status, order execution fill, order execution fillcorrections, order cancel confirmations, order cancel partial fills,order replace, compliance review hold order, compliance review approveorder, compliance review release order for execution and updating ofopen Good Til Cancel (GTC) orders. The order entry module 11CiD allowsorder entry for the purposes of testing rules and their parameters forcategorizing orders as high touch or low touch. The order entry module11CiD also, using the internal communications network 11CiK, requestsand sends updates to the EDASE's database module 11CiI for purposes ofupdating the EDASE's database records.

In an exemplary embodiment of the HiLo Engine, there are twodestinations for messages from the HiLo Engine. These destinations, inan exemplary embodiment, are organized between the money management firmorder management system and the sponsoring organization order managementsystem as follows.

Money management firm order management system (OMS): The moneymanagement firm's OMS utilizes a Master HLE Trading Desk composed ofthree sub trading desks to process the various order categorizationmessages from the HiLo Engine (HLE):

-   -   High Touch Desk: The money management firm executes the high        touch orders.    -   Low Touch Desk: The money manager does not execute the low touch        orders. Rather, the sponsoring organization executes the low        touch orders and the resulting fill reports are sent by the HiLo        Engine (HLE) to the money management firm's order management        system (OMS) and shown on the Low Touch Desk.    -   Low Touch TRO Desk: The low touch TRO orders are not executed by        the money management firm. Rather, the money management firm        implements the trade rotation order (TRO) among the sponsoring        organizations, which in turn execute the low touch orders. The        resulting fill reports are sent by the HiLo Engine (HLE) to the        money management firm's order management system (OMS) and shown        on the Low Touch desk.

Sponsoring organization order management system (OMS): The sponsoringorganization's OMS utilizes a Master HLE Trading Desk composed of foursub trading desks to process the various order categorization messagesfrom the HiLo Engine:

-   -   High Touch Desk: The money management firm executes the high        touch orders. The sponsoring organization receives the fills        through the HiLo Engine (HLE) for the allocations at the end of        the trading day from their custodian.    -   TRO Desk: The money management firm implements the trade        rotation order (TRO) needed among their sponsoring        organization's accounts. This desk tracks the low touch TRO        orders until the money management firm releases the orders for        execution by the sponsoring organizations.    -   Low Touch Desk: The sponsoring organization executes the low        touch orders. The resulting fill reports are sent by the HiLo        Engine (HLE) to the money management firm's order management        system (OMS).    -   Low Touch Algo Desk: Low touch algo orders are executed by the        sponsoring organizations, who evaluate whether the order        requires the use of a trading algorithm (such as TWAP or VWAP).        The resulting fill reports are sent by the HiLo Engine (HLE) to        the money management firm's order management system (OMS).

The rules module 11CiE represents a computer processor and softwareapplication that enables users, through the EDASE's graphical userinterface 11CiL at the sponsoring organizations 304 and sub-advisors301, according to their agreed procedures, to create, modify activate,deactivate and eliminate rules for the assignment of discretion over theexecution of order through the categorization of orders as high touch orlow touch. Thus, through the rules module 11CiE, the user can specifythe tests, measures and parameters for categorizing orders as high touchor low touch, create and modify pre set levels as well as createexceptions to the rules for accounts, group of accounts, individualissues (symbols) and groups of issues. The rules module 11CiE alsoenables creation of parameter for the algorithm and trade rotation ordertests for low touch orders. The rules module 11CiE also, using theinternal communications network 11CiK, requests and sends updates to theEDASE's database module 11C11 for purposes of updating the EDASE'sdatabase records.

There are three “primary” rules utilized by the HiLo Engine incategorizing an order as high touch or low touch. Money management firms(sub-advisors) are assigned control over the selection of the rules toutilize and their associated governing parameters (such as percentagesand time periods). In alternative embodiments, the sponsoringorganization of both firms could control the rules, according to anagreed procedure. If an order fails one or more of the activated primaryrule tests, then the order is categorized as high touch.

In an exemplary embodiment of the present invention, the moneymanagement firm can select any one, two, or all three of the followingthree primary rules (top of book, average hourly liquidity, and averagedaily trading volume), and make changes in real-time with respect to therules and associated parameters, for categorizing orders as high touchor low touch:

Top of book (current liquidity): The top of book rule examines thecurrent liquidity available in shares of an issue across the exchangesand leading ECNs (protected markets) on the side (buy or sell) of theorder in comparison to the number of shares in each order. The governingparameters are: Percentage, such as 300%.

Average hourly liquidity: The average hourly liquidity rule examines theaverage top of book liquidity over specified time period, such as anumber of hours. The average hourly liquidity data captures the averagetop of book liquidity for the time period specified. The governingparameters are: Percentage, such as 300%, and number of hours, such astwo (most recent) hours.

Average daily trading volume: The average daily trading volume ruleexamines the average daily trading volume for a specified number of themost recent trading days. The governing parameters are: Percentage, suchas 5%, and number of trading days, such as 20 days.

The three rules can be activated in any combination of one, two, orthree rules, as desired by the sub-advisor. The money manageradministrator and/or money manager trader can change, in real-time, theselection and activation of rules and the associated parameters.

A further aspect of the present invention uses secondary rules.Secondary rules provide valuable, but not mandatory, suggestions toassist with the proper execution of low touch orders. Money managementfirms can control the governing parameters (such as percentages and timeperiods) for these rules. The money management firms can determine thegoverning parameters for two secondary rules (low touch algo and lowtouch trade rotation order):

Low touch algo: The low touch algo rule provides a suggestion that thesponsoring organization's order routing desk consider employing analgorithm in the execution of an order. The governing parameters are:The top of book (%), average hourly liquidity (% and number of hours)and average daily volume (% and number of days) parameter structure isidentical to the primary rules. However, it is expected that theparameters utilized for the low touch algorithm rules may be equal to orless the parameters for an individual order.

Low touch TRO (trade rotation order): The low touch TRO rule provides asuggestion that a trade rotation order be considered by thesub-advisor's trading desk in the execution of a group of orders on thesame side of the same security. This analysis excludes high touch ordersin the group. The governing parameters are: The top of book (%), averagehourly liquidity (% and number of hours) and average daily volume (% andnumber of days) parameter structure is identical to the primary rules.However, it is expected that the parameters utilized for the TRO rulesmay be equal or exceed the parameters for an individual order.

Orders can be categorized as both low touch algo and low touch TRO;thus, an order can be categorized as “low touch TRO algo.” This orderrequires a trade rotation order as part of a group of orders. Thesponsoring organization, once receiving the individual order, mayconsider utilizing an algorithm to execute the order.

In a further aspect of the present invention, as an option for quicklysetting and changing the parameters for rules, the HiLo Engine providesfive pre set levels for governing parameters for the primary andsecondary rules. The money manager admin or trader can change theselected levels with the click of a button, for example, from Level 1 toLevel 3 or from Level 3 to Level 5, and the HiLo Engine immediatelychanges the governing parameters for the rules. The system administratorcontrols the parameters for the five pre set levels. The higher levelsincrease the percentage of orders categorized as low touch.

In a further aspect of the present invention that provides touchoverrides, the money manager trader can override the touch level for anorder from a high touch order (executed by the money management firm) tolow touch (executed by the sponsoring organization).

In a further aspect of the present invention, the HiLo Engine enablesmoney management firms to create exceptions to the primary rulesutilized for categorizing orders. Exceptions are easy to create,administer and review. The primary rules are as follows:

Primary Rules: Primary rules govern the categorization of orders as hightouch or low touch in the absence of exceptions.

The exception rules are as follows:

-   -   Account rules: Account rules enable users to set up exceptions        to primary rules for designated accounts.    -   Symbol rules: Symbol rules enable users to set up exceptions to        primary or account rules for designated individual securities.    -   Symbol group rules: Symbol group rules enable users to set up        exceptions to primary or account rules for designated groups of        individual securities.

The hierarchy among exception rules is as follows:

-   -   Symbol group rules override symbol, account and primary rules.    -   Symbols rules override account and primary rules.    -   Account rules override primary rules.    -   Primary rules are utilized when there are no symbol, symbol        group or account exceptions.

The operations module 11CiF represents a computer processor and softwareapplication that enables users, through the EDASE's graphical userinterface 11CiL at the sponsoring organizations 304 and sub-advisors301, to perform the following operations functions: start and stop theEDASE 1105, recover from lost data feed, monitor current operatingstatus, login and log out, track order and internal processing errorsand utilize a heartbeat function to check on connectivity with externalusers. The operations module 11CiF is monitored by the EDASEadministrator 11CiM and using the internal communications network 11CiK,requests and sends updates to the EDASE's database module 11CiI forpurposes of updating the EDASE's database records.

The reporting module 11CiG represents a computer processor and softwareapplication that enables users, through the EDASE's graphical userinterface 11CiL, at the sponsoring organizations 304 and sub-advisors301, to perform real-time queries of the database module 11C11 forfollowing reporting functions: View rules and their related tests,measures, parameters and exceptions related to high and low touch, traderotation order and algorithm orders; routing statistics for orders,order discretion assignment audit reports and archives, overrides oforder discretion assignments by users, lost and incomplete orders andopen Good Til Cancel (GTC) orders. The reporting module 11CiG provides adata export facility and, using the internal communications network11CiK, requests and receives reports from the EDASE's database module11CiI.

The decision analysis module 11CiH represents a computer processor andsoftware application that functions as the “brain” of the EDASE 1105 forpurposes of, for a specific order, gathering the necessary market data,compiling the necessary rules, performing the required calculations,evaluating the results, categorizing the order as high touch, low touch,low touch algo, low touch TRO or low touch algo TRO, adding thecompliance review status and creating the message for the users toreceive the output of the EDASE 1105. This message is routed, using theinternal communications network 11CiK, to the translation module 11CiBfor purposes of creating the desired message format for the users. Thedecision analysis module 11CiH also, using the internal communicationsnetwork 11CiK, requests and sends updates to the EDASE's database module11CiI for purposes of updating the EDASE's database records.

The database module 11CiI represents a computer processor and softwareapplication that functions as the primary repository for all current andhistorical data and archiving of necessary data for the EDASE 1105. Thedatabase module's 11CiI field structure includes data on: securities;accounts; organizations including sponsoring organizations, moneymanagement firms and EDASE administrators; rules with tests, measuresand parameters; pre set levels; exceptions by accounts, groups ofaccounts, symbols and groups of symbols; users, roles and permissions;active and deactivated accounts; order routing decisions and overrides;canceled and replaced orders; lost orders and operational statisticssuch as CPU utilization. The database module 11CiI is updated, using theinternal communications network 11CiK, through communication with theother functional modules within the EDASE 1105 and serves as an archivefor all EDASE 1105 data and activity.

Data feeds represent critical inputs to EDASE 1105. A market data feed1001, using a dedicated line in the external communications network11CiJ, is incorporated into the functions of the EDASE 1105. Messagesoriginating from the sponsoring organizations 304 and sub-advisors 301,utilizing the external communications network 11CiJ, also representimportant data feeds regarding new organizations, order entry, canceland correct of orders, compliance status, new and activated accounts,trade fill reports, changes in the rules, user updates and associatedoperational information.

Messages perform a critical function in the EDASE 1105. Messagesrepresent database records composed of various fields in a format thatis specialized to the EDASE 1105 as these messages are utilized tocommunicate various events to the users. The EDASE 1105, through theexternal communications network 11CiJ, utilizing the following messages:new orders, new orders with high touch-low touch decision, high touch tolow touch override, high touch Good Til Cancel (GTC) updates,compliance=OK, compliance under review, order released from compliance,cancel order request, cancel response—cancel confirmed, cancelresponse—cancel rejection, cancel response—cancel unfilled portion oforder, sponsoring organization initiated cancel, execution fill,execution fill modification, empty message (heartbeat) and order error.

FIG. 11Cii is a schematic diagram illustrating an exemplary sponsoringorganization trading process in which trade orders originate (areentered) by a portfolio manager or a plurality of portfolio managersemployed by a money management firm or a plurality of money managementfirms responsible for the investment management process for a sponsoringorganization's investment portfolios, according to an embodiment of thepresent invention. The process shown in FIG. 11Cii is an alternative tothe embodiment of FIG. 22, discussed below.

As shown in FIG. 11Cii, the sub-advisor's (money management firm's)order management system (OMS) 503 SA routes the orders to the HiLoEngine 1105. The HiLo Engine 1105 performs two functions:

(1) Routes the trade orders to the sponsoring organization's 304rules-based compliance system 506 SO for a compliance supervisory reviewprior to the execution of the trade order. If there is a violation ofthe securities laws, account restrictions, or prohibited transactions,then the order is held by the sponsoring organization's 304 compliancesystem 506 SO pending resolution between the sponsoring organizationcompliance group 1180 and the sub-advisor's compliance group 2202; and

(2) Utilizes a rules-based engine, and the agreed rules of thesponsoring organization 304 and sub-advisor (money management firm) 301for determining whether an order is high touch or low touch, tocategorize each trade order as high touch or low touch. The high touchorders are routed back to the sub-advisor 301, who has responsibility(discretion) over the execution of the high touch orders by selectingone or more executing venues or brokers 202. The low touch orders arerouted to the sponsoring organization 304, who directs the low touchorders for execution by selecting one or more low cost, high qualityexecuting venues or brokers 202.

FIG. 11Cii is an exemplary illustration of an alternative embodiment ofthe unified trading and control system 2200 with respect to a real-timecomputerized process involving a sponsoring organization 304 and aplurality of trade orders, trading or order management systems (OMS) 503SA and 503 SO, the HiLo Engine 1105, sub-advisors 301, portfoliomanagers 1103, and executing brokers 202.

An exemplary workflow utilization process is as follows (where thenumbered steps below correspond to the numbers indicated in FIG. 11Cii):

11Cii1) The portfolio manager 1103 at the sub-advisor 301 creates tradeorders as to buy and sell securities and sends the orders to order entrysystem 700. The portfolio manager(s) for an investment portfoliocommunicates orders (such as buy or sell a security or a plurality ofsecurities) via means such as electronic order entry, telephonediscussions, text messages, personal conversations, writteninstructions, or other means to the money management firm's tradingdesk.

11Cii2) Orders are entered into order entry system 700 and added to thesub-advisor's 301 order management system (OMS) 503 SA.

11Cii3) The sub-advisor's 301 order management system (OMS) 503 SAroutes the order to the sub-advisor's compliance system 506 SA forcompliance review according to the compliance rules established by thesub-advisor 301.

11Cii4) The orders passing the compliance review process (OK) are sentto the sub-advisor's trading desk operating the order management system(OMS) 503 SA.

11Cii5) An order violating the sub-advisor's 301 compliance rules isrouted to the sub-advisor's compliance department 2202 for furtherreview.

11Cii6) The sub-advisor's order management system (OMS) 503 SA sends allorders for a sponsoring organization's 304 accounts to the HiLo Engine1105. The HiLo Engine 1105 applies the appropriate rules set agreed uponby the sponsoring organization 304 and sub-advisor 301 to analyze eachorder relative to current and historical liquidity and trading volumefor the issue represented in the order as to categorize an order as hightouch or low touch. The set of rules for categorizing orders iscustomizable by firm, portfolio manager, investment portfolio, trader,or individual security, group of securities, or through an alternativeschema.

11Cii7) The HiLo Engine 1105 routes all orders for a sponsoringorganization 304 to that sponsoring organization's compliance system 506SO for review prior to execution according to the compliance rulesestablished by the sponsoring organization 304.

11Cii8) An order violating the sponsoring organization's 304 compliancerules is routed to the sponsoring organization's compliance department1180 for further review.

11Cii9) The sponsoring organization's compliance department 1180contacts the sub-advisor's compliance department 2202 for resolution ofthe order triggering the violation in the sponsoring organization's 304compliance review process. The order may be canceled, replaced,modified, or subsequently approved for execution.

11Cii10) The high touch orders passing the sponsoring organization's 304compliance review process (OK) are routed to the HiLo Engine 1105.

11Cii11) The high touch orders are routed by the HiLo Engine 1105 to thesub-advisor's order management system (OMS) 503 SA.

11Cii12) The high touch orders are directed by the sub-advisor's ordermanagement system (OMS) 503 SA to executing brokers 202.

11Cii13) The orders are executed by the executing broker 202 and theexecuting broker 202 sends trade fill reports to the sub-advisor's ordermanagement system (OMS) 503 SA.

11Cii14) The executing broker 202 sends trade details for the high touchexecuted orders to the Depository Trust Clearing Corporation (DTCC)1181.

11Cii15) DTCC 1182 transmits the details of all trade executions by thesub-advisor 301 to the sub-advisor's custodian 1182.

11Cii16) On the trade date, the sub-advisor's custodian 1182 transmitsthe details of all trade executions to the sub-advisor's tradereconciliation, or fund accounting, group 1183.

11Cii17) The HiLo Engine 1105 sends low touch orders passing thesponsoring organization's 304 compliance review process (OK) to thesponsoring organization's order management system (OMS) 503 SO.

11Cii18) The low touch orders are routed by the sponsoringorganization's order management system (OMS) 503 SO to an executingbroker 202.

11Cii19) The low touch orders are executed by the executing broker 202and the executing broker 202 sends trade fill reports to the sponsoringorganization's order management system (OMS) 503 SO.

11Cii20) The sponsoring organization's order management system 503 SOsends the trade fill data for low touch order executions to the HiLoEngine 1105.

11Cii21) The HiLo Engine 1105 sends the trade fill data for the lowtouch order executions to the sub-advisor's order management system(OMS) 503 SA.

11Cii22) The executing broker 202 sends trade details for low touchexecuted orders to the Depository Trust Clearing Corporation (DTCC)1181.

11Cii23) DTCC 1181 transmits the details of all trade executions by thesponsoring organization 304 to the sponsoring organization's custodian303.

11Cii24) On the trade date plus one day, the sponsoring organization'scustodian 303 transmits the details of all trade executions to thesponsoring organization's fund accounting group 1184.

11Cii25) On the trade date plus two, the sponsoring organization's fundaccounting group 1184 sends a comparison file to the sub-advisor's fundaccounting group 1183. Any errors in transactions by either thesponsoring organization 303 or the sub-advisor 301 are reconciled.

According to an embodiment of the present invention, the HiLo Engineperforms as follows. With orders whereby the expected market impact issignificant, the order is categorized as high touch and routed back tothe money management firm's OMS. The sub-advisor's (money managementfirm's) trade desk may “work” the order by selecting one or moreexecuting venues or brokers to act upon specific instructions by theportfolio manager, to protect the anonymity of the money management firmas the source of the order and/or to minimize the market impact of theorder. For orders whereby the expected market impact is not significant,then the order is categorized as low touch and routed to the sponsoringorganization's OMS. The sponsoring organizations execute the trade orderby selecting one or more executing venues or brokers so as to minimizeexecution costs and improve the quality of execution (rapid speed ofexecution and realized price improvement). The execution of trade ordersby the sponsoring organization also protects the anonymity of the moneymanagement firm as the source of the order.

The HiLo Engine may also add additional considerations to low touchorders (which can be referred to as low touch special orders) such aswhether:

(a) The HiLo Engine may suggest the sponsoring organization considerutilizing an electronic trading algorithm with the low touch order inorder to divide a parent order into a plurality of smaller child ordersfor execution according to a predetermined strategy. If so, thesponsoring organization can select the specific algorithm (such as TWAP,VWAP, arrival price, or implementation shortfall) and the associatedparameters (such as start time, finish time, and level ofaggressiveness) for the selected algorithm for execution through one ormore executing venues or brokers. Also, a money management firm mayutilize a trading algorithm for a high touch order and, as a result,divide the high touch order into a number of high touch and low touchorders. The low touch orders generated by the money management firm'salgorithm could be executed by the sponsoring organization.

(b) In circumstances where an individual order does not have asignificant expected market impact, but the cumulative impact of a groupof orders for the same side (buy or sell) of the same security for aplurality of accounts managed by a sub-advisor being executedsimultaneously could potentially have a greater than desired marketimpact, the HiLo Engine may suggest that a trade rotation order (TRO) beimplemented for such a group of low touch orders. The sub-advisor (orthe system administrator or another party) determines the timing of therelease of the orders for execution by the sponsoring organization. Eachsponsoring organization, upon receiving the order once it is releasedwithin the trade rotation order (TRO), executes the order as it wouldany low touch or low touch algorithm order.

FIG. 11D is a schematic diagram illustrating an alternative embodimentof FIG. 11A according to which the HiLo Engine captures orders from thesub-advisor, categorizes the orders as high touch or low touch, routesthe order to compliance review by the sponsoring organization, androutes the low touch orders to either the sponsoring organization(advisor) and the high touch orders to the sub-advisor (money managementfirm), according to an embodiment of the present invention.

Referring to FIG. 11D, an exemplary HiLo Engine utilization process isas follows (where the numbered steps below correspond to the numbersindicated in FIG. 11D):

11D1) The sub-advisor 301 enters an order into the sub-advisor's ordermanagement system (OMS) 503 SA.

11D2) The sub-advisor's order management system (OMS) 503 SA creates amessage to route the order to the HiLo Engine 1105.

11D3) The HiLo Engine 1105 receives the message from the sub-advisor 301and reads the order.

11D4) The HiLo Engine 1105 prepares a data packet request for the orderand sends the request to the real-time market data provider 1001.

11D5) The real-time market data provider 1001 creates and routes therequested data packet to the HiLo Engine 1105.

11D6) The HiLo Engine 1105 receives the market data packet for the orderand, applying the appropriate customizable rules, categorizes the orderas high touch or low touch.

11D7) The HiLo Engine 1105 creates a message to route the order and hightouch or low touch decision to the sponsoring organization's compliancesystem 506 SO.

11D8) The sponsoring organization's compliance system 506 SO receivesthe message containing the order from the HiLo Engine 1105 and performsa compliance check of the order for any violation of securities laws,account restrictions, or prohibited transactions.

11D9 a) If the order is low touch and compliance=OK, the sponsoringorganization's compliance system 506 SO routes order to the sponsoringorganization's order management system (OMS) 503 SO.

11D9 b) The sponsoring organization's order management system (OMS) 503SO determines order routing and sends the order to the executing broker202. The executing broker 202 fills the order and sends the fill reportto the sponsoring organization's order management system (OMS) 503 SO.

11D9 c) The sponsoring organization's order management system (OMS) 503SO creates a message to send the fill report to HiLo Engine 1105.

11D9 d) The HiLo Engine 1105 sends the fill report message to thesub-advisor's order management system (OMS) 503 SA.

11D10 a) If the order is high touch and compliance=OK, the sponsoringorganization's compliance system 506 SO sends a “high touch andcompliance=OK” message to the HiLo Engine 1105.

11D10 b) The HiLo Engine 1105 sends the “high touch and compliance=OK”message to the sub-advisor's order management system (OMS) 503 SA forthe sub-advisor 301 to determine and implement the proper executionstrategy for the order.

11D11) If order is high touch or low touch and compliance=violation, thesponsoring organization's compliance system 506 SO holds the order andsends a message to alert the sponsoring organization 304 and sub-advisor301 of the potential violation. If the order is low touch and theviolation is overridden, then the message is compliance=approval andsteps 11D9 a through 11D9 d occur. If the order is high touch and theviolation is overridden, then the message is compliance=approval andsteps 11D10 a through 11D10 b occur.

11D12) With compliance=denial of override of violation, the sponsoringorganization's compliance system 506 SO holds the order until the orderis canceled, replaced by another order, or a final disposition of theorder is determined.

FIG. 11E is a screen shot from an embodiment of the present inventionillustrating the HiLo Engine's exemplary graphical user interface (GUI)providing a plurality of tests 11E1, activation boxes 11E2, measures11E3, parameters 11E4 and pre set levels 11E5 employed to categorize anorder as high touch or low touch, according to step 11D6 of anembodiment of the present invention.

The HiLo Engine provides an exemplary graphical user interface (GUI)referred to as a “TMP Screen” whereby “T” represents the tests 11E1, “M”represents the measures 11E3, and “P” represents the parameters 11E4, asdescribed in the rules module 11CiE, according to an embodiment of thepresent invention. The activation boxes 11E2 on the TMP screen areutilized to select and activate (or deactivate by unchecking) the boxesrepresenting the plurality of measures available for each test. The TMPscreen also allows inputting of the associated parameters utilized byeach test. Drop down boxes provide access to pre set levels 11E5 (suchas 1 for a lowest percentage of orders categorized as low touch through5 for the highest percentage of orders categorized as low touch in thepresent embodiment) for specific combinations of tests 11E1, measures11E3, and parameters 11E4.

FIG. 11E is an exemplary illustration of how an embodiment of thepresent invention operates with respect to a real-time computerizedprocess involving a graphical user interface (GUI) for establishing,monitoring, and changing the computerized rules, and real-time marketdata, utilized to determine if a trade order is high touch or low touch.The HiLo Engine provides a TMP screen for tests 11E1, measures 11E2 andparameters 11E4, as follows:

(1) Tests 11E1 are configured to determine if the trade order is hightouch versus low touch, if a trade algorithm is recommended (andcategorized as low touch algorithm), and if a trade rotation order (TRO)is recommended for a group of orders that are individually categorizedas low touch (and categorized as low touch TRO). Additional and/oralternative tests 11E1 are easily implemented in the HiLo Engine.

Referring to the column headings in FIG. 11E, the Hi/Lo represents theresult of the analytical process used to categorize an order as hightouch (Hi) or low touch (Lo), whereby the sub-advisor is assigneddiscretion over the execution of the high touch orders and thesponsoring organization is assigned discretion over the execution of thelow touch orders. The HiLo Engine (HLE) also conducts an analyticalprocess to determine if consideration of a trading algorithm for lowtouch orders is merited (Algo) or if the application of a trade rotationorder (TRO) should be considered for a group of orders. An order canalso be Lo Algo TRO, which represents a low touch order with asuggestion that a trade rotation order be considered for a group oforders and a suggestion that a trade algorithm be considered for aspecific order in the group of orders

(2) Activation boxes 11E2 are check boxes to select andactivate/deactivate the appropriate measures 11E3 that are utilized bythe HiLo Engine for determining whether an order is high touch or lowtouch. The activation boxes 11E2 allow the HiLo Engine user to selectany or all of the measures 11E3 they wish to employ in the HiLo Engine.For example, a user may check the activation boxes 11E2 for “Top ofBook” and “Average Daily Volume.” In the example shown in FIG. 11E, theunchecked “Average Hourly Liquidity Measure” would not be utilized forany of the tests 11E1. The unchecking of an activation box 11E2deactivates a measure 11E3. Activation and deactivation of measures 11E3are implemented by the HiLo Engine in real-time.

(3) Measures 11E3 represent the rules utilized for categorizing ordersas high touch or low touch. A plurality of measures 11E3 may be utilizedand, in the embodiment of the present invention, if one or more of themeasures 11E3 fails according to the parameters 11E4, then the order iscategorized as high touch. Thus, in FIG. 11E, three measures 11E3 areshown (Top of Book, Average Hourly Liquidity, and Average Daily Volume)and an order failing any one or more of the activated measures 11E3could be categorized as high touch. Further embodiments of the presentinvention could include additional or alternative measures 11E3 (such asa pre-determined maximum number of shares for an order to be low touch)as desired by the user.

(4) Parameters 11E4 are the specific market data values that orders arecompared against when categorized as high touch or low touch. Forexample, a parameter 11E4 could represent an order whose number ofshares represents less than 3% of the average daily volume of sharestraded for that issue over the last twenty-two trading days is a lowtouch order. The parameters 11E4 are 3% and twenty-two days. Or, aparameter 11E4 could be that all orders whose number of shares representless than the average of 100% of the top of book liquidity (the totalshares shown available at the best available share price) for that issueover the previous one hour are low touch. The parameters 11E4 are 100%and one hour.

Therefore, in the representative screen shot of FIG. 11E, a HiLo Engineuser utilizes the input boxes and drop down menus to select the measures11E3 and to specify the parameter 11E4 values for the evaluation oftrade orders as high touch or low touch. A user may check activationboxes 11E2 for Top of Book and set the “Hi/Lo” parameters 11E4 at 300%and two minutes, skip the low algorithm test 11E1 by not specifying anyparameters 11E4 for it and implement the trade rotation order test 11E1by specifying 500% and two minutes as parameters 11E4. Likewise, theAverage Hourly Liquidity and Average Daily Volume measures 11E3 could beutilized in a similar fashion.

(5) Through the use of pre set levels 11E5, the system administrator ofthe HiLo Engine provides pre-set groups of parameters 11E4 to categorizean order as high touch or low touch. A selection such as “1” in thepresent embodiment results in a lower percentage of orders categorizedas low touch and routed to the sponsoring organization for executionwhile a selection such as “5” in the present embodiment results in ahigher percentage of orders categorized as low touch. Thus, a user couldcheck any of the five (in the present embodiment) boxes and the measures11E3, and parameters 11E4 fields are automatically provided to andutilized by the system.

All of the variables on the TMP screen shown in FIG. 11E can be reviewedand changed in real-time by the user. The HiLo Engine also providessummary and detailed statistical reporting as to the categorizationresults, including but not limited to, the percentage of orders andnumber of shares traded determined as high touch, low touch, override ofhigh touch to low touch, override of low touch to high touch, algorithmrequirements, trade rotation order requirements and processing errors bysponsoring organization, money management firm, groups of investmentportfolios, individual investment portfolios, groups of securities, andindividual securities. An audit facility for reviewing rules, data,decisions and discretion assignment is also provided for reviewing theHiLo Engine's (HLE) processing results for a specific or plurality oforders. Alternative and additional user statistics are also availablefor system performance reporting purposes, including but not limited to,the users and their roles on the system, the availability of the HiLoEngine to the user, down time, connectivity maintenance, processingtimes, percentage of CPU utilization, and other such performance-relatedstatistics.

FIG. 11F is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed by a system administrator toinstitute a plurality of system-wide pre set levels 11E5 (incategorizing trade orders as high touch or low touch) that are providedto system users, as described in the rules module 11CiE, as a one-buttonimplementation of complete sets of rules employed to categorize an orderas high touch or low touch, according to step 11D6 of an embodiment ofthe present invention. Measures 11E3 and tests 11E1 are shown along witha plurality of pre set levels 11E5 (with five levels available in thisembodiment) along with the desired parameters 11E4. Users can select apre set level 11E5 and thereby utilize the combination of measures 11E3,tests 11E1, and parameters 11E4 associated with the selected pre setlevel 11E5. The pre set levels 11E5 are established and modified by thesystem administrator and are customizable in real-time.

FIG. 11G is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to institute a plurality ofexceptions, as described in the rules module 11CiE, by accounts orsymbols (such as an individual security) to the measures 11E3 employedto categorize an order as high touch or low touch, according to step11D6 of an embodiment of the present invention. Exceptions by account orsymbol 11G1 are implemented in the HiLo Engine though the “Exception toRules” GUI of FIG. 11G by selecting the activation box and creating aseparate set of measures 11E3, tests 11E1, and parameters 11E4associated with the account or symbol exception. The “Force to Hi Touch”button 11G2 enables the HiLo Engine user to automatically categorize allorders for an account or symbol as high touch.

FIG. 11H is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to create groups of symbols foruse as exceptions, as described in the rules module 11CiE, to the rulesused to categorize orders as high touch or low touch, according to step11D6 of an embodiment of the present invention. Through this GUI, a useris able to create exceptions to the measures 11E3, tests 11E1, andparameters 11E4 for a group of symbols and name the exception group forfuture reference.

FIG. 11I is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to transmit an order from themoney management firm (sub-advisor) to the HiLo Engine, as described inthe order entry module 11CiD, for categorization of the trade order ashigh touch or low touch, according to steps 11D1 and 11 d 2 of anembodiment of the present invention. Such a facility provides a directlink between the money manager and the HiLo Engine and also can enablethe HiLo Engine user to test scenarios with various combinations oftests 11E1, measures 11E3, and parameters 11E4 in order to become morefamiliar with the operation of the HiLo Engine. In an alternativeembodiment, the sub-advisor's trading system utilizes an electronicintegration and messaging process to submit trade orders to the HiLoEngine as the sub-advisor's trading groups enters the orders into theirtrading system.

FIG. 11J is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to report the results, asdescribed in the reporting module 11CiG and in the decision analysismodule 11CiH, of the HiLo Engine's analysis and categorization of anorder as high touch or low touch, according to step 11D6 of anembodiment of the present invention. Symbol 11J1 and order number 11J2represent a specific order while order details 11J3 refers to the numberof shares, the side (buy or sell), and the order type (such as market orlimit). The decision 11J4 (such as high touch, low touch, low touchalgo, and low touch TRO) and order status 11J5 (such as success orerror) show the results of the HiLo Engine's categorizing an order ashigh touch or low touch.

FIG. 11K is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide the user, asdescribed in the reporting module 11CiG, with data as to the orderdetails 11J3 (such as entry time, decision time, order ID, account,sponsoring organization, symbol, order type, quantity, side, and time inforce (TIF)) and high touch or low touch decision 11J4 for an individualorder, according to step 11D6 of an embodiment of the present invention.

FIG. 11L is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to create roles for a pluralityof users, as described in the admin module 11CiC, along with theirrights in the HiLo Engine, according to step 11D6 of an embodiment ofthe present invention. User name 11L1 and security role 11L2 control theaccess, rights, and responsibilities for each of a plurality of users ofthe HiLo Engine.

FIG. 11M is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to create a plurality of userorganizations, as described in the admin module 11CiC, as eithersponsoring organizations or sub-advisors (money management firms), inthe HiLo Engine, according to, according to step 11D6 of an embodimentof the present invention. The system administrator utilizes organizationID 11M1 and organization name 11M2 to identify the organizationaccessing the HiLo Engine. Money manager 11M3 identifies the userorganization as a money management firm and ascribes the associatedmoney management rights to an organization. Add new organization 11M4enables the system administrator to add a new organization as a user ofthe HiLo Engine.

FIG. 11N is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to provide account (investmentportfolio) administrative capabilities, as described in the admin module11CiC, including the activation of an account's electronic submission oftrade orders to the HiLo Engine, according to step 11D6 of an embodimentof the present invention. The sponsoring organization administratorutilizes the account administration screen to create accounts(investment portfolios) on the HiLo Engine, including the name andnumber of the account (investment portfolio). The money manageradministrator activates the account for submitting orders to the HiLoEngine. Organization ID 11M1 denotes the sponsoring organization's namealong with the associated identification number of the sub-advisor(money management firm) while activate account 11N1 activates theelectronic integration between the sub-advisor and the HiLo Engine forthe selected account to enable the sub-advisor to electronically submitorders to the HiLo Engine and to receive communications from the HiLoEngine for the activated account regarding categorization as high touchor low touch, compliance status, trade fill reports, and ordercancellations.

FIG. 11O is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to provide a sponsoringorganization with a summary of the rules and parameters, as described inthe rules module 11CiE and in the reporting module 11CiG, used by theirsub-advisors (money management firms) to categorize orders as high touchor low touch, according to step 11D6 of an embodiment of the presentinvention. Money manager ID 11O1 identifies the money management firm.Measures 11E3 show the selected measures 11E3. Pre set level 11E5 showsif a pre set level 11E5 is utilized in categorizing an order as hightouch or low touch. Tests 11E1 show the HiLo, TRO, and algo tests 11E1and their customized parameters 11E4 for the measure 11E3. Active status11O1 shows whether a measure is currently activated and utilized by theHiLo Engine.

FIG. 11P is a screen shot illustrating an exemplary HiLo Enginegraphical user interface (GUI) employed to provide customizable andreal-time search capability, as described in the reporting module 11CiG,for real time and archival reporting and usage statistics for the HiLoEngine, according to step 11D6 of an embodiment of the presentinvention. The HiLo Engine's search capability can include the followingcustomizable parameters: account, money manager, sponsoringorganization, routed, error, overridden, date from, date to, order ID,and symbol.

FIG. 11Q is a screen shot that illustrates an exemplary HiLo Enginegraphical user interface (GUI) employed to provide detailed usagestatistical reports, as described in the reporting module 11CiG,summarizing the number and percentage orders as categorized as hightouch or low touch, according to step 11D6 of an embodiment of thepresent invention. Organized by sponsoring organization and account forthe money management firms, and by money management firm and account forthe sponsoring organization, the report shows the following data bypercentage of orders, number of orders, or both: number of orders, hightouch orders, low touch orders, overrides of high touch to low touch,overrides of low touch to high touch, order suggesting the use of atrade algorithm, orders suggesting the use of a trade rotation order,and the errors experienced by the system.

FIG. 11R is a schematic diagram illustrating an exemplary structure forcreating user roles ad assigning various permissions andresponsibilities to these user roles, according to an embodiment of thepresent invention.

Additional functionality included in the HiLo Engine (HLE) 1105 consistsof: post trade and post compliance processes whereby passive violations(violations due to changes in market prices, rather than tradingactivity) are highlighted and appropriate action taken to return theinvestment portfolio to proper compliance; release of previouslysuspended orders by the sponsoring organizations; execution fillreports, modification to execution fill reports; notices regarding tradeerrors; transaction summary reports by the sponsoring organization andmoney management firms to each other; trade reconciliation processbetween the sponsoring organization and money management firms; ordercancel and cancel and replace process; cancel unexecuted shares; denycancel order requests; sponsoring organization initiated order cancel;and real-time checks on communications links between the HLE and thesponsoring organizations and money management firms.

The HiLo Engine (HLE) is unique in that it provides a real-time,pre-trade compliance review process that enables sponsoringorganizations, for the first time, to prevent violations in tradingactivity by sub-advisors, and performs an expected market impactanalysis and assigning of discretion over order execution and selectionof executing brokers to different organizations utilizing real-timemarket data and customizable rules. The result of the HiLo Engine'sdiscretion assignment process, also for the first time, is lowerbrokerage costs and improved investment performance for sub-advisedinvestment portfolios. The innovative capabilities and functionality ofthe HiLo Engine (HLE) are absent from the prior art.

An example of the present invention provides, in a method forfacilitating unified trading and control for a sponsoring organization'smoney management process using a plurality of money management firms tomanage the sponsoring organization's investment portfolios, a method forassigning responsibility for trade order execution comprising:

-   -   defining a plurality of investment portfolios containing        securities, each portfolio having a particular investment        strategy;    -   assigning at least one money management firm for each investment        portfolio, wherein the at least one money management firm        provides at least one portfolio manager to make investment        recommendations for the each investment portfolio;    -   receiving at the sponsoring organization from the money        management firms investment recommendations for the plurality of        investment portfolios in the form of orders comprising a number        of units to trade for each security based on the        recommendations;    -   receiving from the sponsoring organization, for each of the        plurality of investment portfolios, compliance review parameters        comprising at least one of the regulatory laws, regulatory        rules, account restrictions, prohibited transactions, prohibited        holdings, and prospectus requirements applicable to the each        investment portfolio;    -   determining, according to the compliance review parameters, and        prior to execution of an order, if the execution of the order        would result in a violation of at least one of the compliance        review parameters;    -   suspending, pending examination of the order, the execution of        the order if execution of the order would result in a violation        of the compliance review parameters for the associated        investment portfolio;    -   examining the suspended order to determine whether the suspended        order is canceled, modified, replaced, or approved for        execution;    -   determining, at any time, for each investment portfolio, whether        the each investment portfolio is in compliance with compliance        review parameters associated with the each investment portfolio,        and if at least one violation of the each investment portfolio's        compliance review parameters is found, determining actions        needed to return the each investment portfolio into compliance        with the compliance review parameters of the each investment        portfolio and implementing the actions to return the each        investment portfolio to compliance with its compliance review        parameters;    -   identifying market impact parameters upon which to determine        whether expected market impact of an order is high or low;    -   determining, for each order, an organization given discretion        for executing a trade for the each order, wherein determining        the organization given discretion for executing an order depends        on whether an expected market impact of an order is low or high;    -   if the order is in compliance with the compliance review        parameters for the associated investment portfolio and the        expected market impact of the order is low such that the order        is a low touch order:        -   identifying any other low touch orders on the same side of a            trade transaction for the same security,        -   assessing, if such low touch orders are identified, a            cumulative expected market impact of all of the low touch            orders,        -   determining, for the low touch orders, a set of trade            rotation order parameters to determine an expected market            impact of the low touch orders,        -   identifying, if the expected market impact for the low touch            orders on the same side of the trade transaction for the            same security exceeds the trade rotation order parameters, a            trade rotation order among the low touch orders, according            to a defined procedure for the trade rotation order that is            in compliance with regulatory requirements,        -   determining, for the low touch order, a set of algorithm            parameters to determine if the expected market impact of an            order is sufficient to utilize a trading algorithm,        -   determining, for the low touch order, if expected market            impact exceeds the parameters for using a trading algorithm,        -   identifying, if the low touch order exceeds the trade            algorithm parameters, a trade algorithm in the execution of            the order,        -   routing the low touch trade to the sponsoring organization,            and        -   selecting at least one executing venue or broker according            to a determination of the most cost effective strategy for            the low touch trade, wherein the sponsoring organization            selects the at least one executing venue or broker;        -   routing the low touch order, by the sponsoring organization,            to the at least one selected executing venue or broker for            execution,    -   if the order is in compliance with the compliance review        parameters for the associated investment portfolio and the        expected market impact of the order is high such that the trade        for the each order is a high touch order:        -   routing the high touch order to the money management firm            for selection of at least one executing venue or broker for            the high touch order, and        -   routing the high touch order, by the money management firm,            to the at least one selected executing venue or broker for            execution.

A further aspect of this example of the present invention provides thatwherein for a high touch order, the money management firm formulates atrade strategy for the high touch order that results in a modified ordercomprising high touch orders and low touch orders, and wherein the eachresulting order is in compliance with compliance review parameters forthe associated investment portfolio, and wherein the method furthercomprises:

routing at least one resulting low touch order to the sponsoringorganization, wherein the sponsoring organization selects at least oneexecuting venue or broker for the resulting low touch orders; routingeach resulting low touch order, by the sponsoring organization, to theat least one selected executing venue or broker for execution;

routing at least one resulting high touch order to the money managementfirm, wherein the money management firm selects the at least oneexecuting venue or broker for the resulting high touch orders; and

routing each resulting high touch order, by the money management firm,to the at least one selected executing venue or broker for execution.

A further aspect of this example of the present invention provides thatwherein for a low touch order, the method further comprises dividing thelow touch order into a plurality of smaller orders for execution androuting each low touch order to the at least one selected executingvenue or broker for execution.

A further aspect of this example of the present invention provides thatwherein identifying the trade rotation order comprises:

-   -   determining the trade order rotation for execution between a sub        advisor initiating the trade and the at least one sponsoring        organization acting as advisor or administrator for the        respective investment portfolio or plurality of investment        portfolios; and    -   determining the trade order rotation among the plurality of        sponsoring organizations acting as advisor or administrator for        the respective investment portfolio or plurality of investment        portfolios.

A further aspect of this example of the present invention provides thatthe method further comprises aggregating low touch orders, wherein lowtouch orders on the same side of a trade for an issue for at least onesponsoring organization are aggregated into a single block for tradingand, once executed, units are allocated among the sponsoringorganizations.

A further aspect of this example of the present invention provides thatwherein the sponsoring organization crosses orders on one side of anissue generated by the investment portfolios of the sponsoringorganization against orders on the opposite side of the same issuegenerated by additional investment portfolios of the sponsoringorganization.

A further aspect of this example of the present invention provides thatthe method further comprises providing updates to the sponsoringorganization on remaining open orders for the sponsoring organization'sinvestment portfolios, wherein the money management firm provides datato the sponsoring organization with respect to at least onepartially-filled open orders that remain eligible for further tradingactivity on trading days following the current trading day.

A further aspect of this example of the present invention provides thatthe method further comprises overriding assignment of executiondiscretion of high and low touch orders, wherein one of the moneymanagement firm and the sponsoring organization override the executiondiscretion assignment of an order in order for one of:

the money management firm to assign execution discretion over theexecution of the high touch order to the sponsoring organization;

the money management firm to assign execution discretion over theexecution of the low touch order to money management firm;

the sponsoring organization to assign execution discretion over theexecution of the low touch order to the money management firm; and

the sponsoring organization to assign execution discretion over theexecution of the high touch order to the sponsoring organization.

A further aspect of this example of the present invention provides thatthe method further comprises assigning and updating execution assignmentparameters, wherein the rules and procedures implemented to determineassignment of discretion over an order to one of the sponsoringorganization and the money management firm are created, modified andmaintained, in real-time, in an agreed procedure by the money managementfirm and the sponsoring organization.

A further aspect of this example of the present invention provides thatthe method further comprises assigning and updating, in real-time, bythe sponsoring organization for the at least one investment portfolio,the compliance review parameters.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation request bythe money management firm, receiving a denial of the order cancellationrequest from the sponsoring organization, and denying the ordercancellation request.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation request bythe money management firm, and implementing, by the sponsoringorganization, the order cancellation request for remaining unexecutedunits of the original order.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation requestinitiated by the sponsoring organization for an order from the moneymanagement firm.

A further aspect of this example of the present invention provides thatwherein assets of the each investment portfolio comprise one ofregistered mutual funds, non-registered mutual funds, institutionalinvestment portfolios, variable insurance funds, variable fund LLCs,regulated investment company funds, defined contribution plans, 529plans, hedge funds, group annuities, collective investments, deferredcompensation plans, separately managed accounts (SMAs), institutionalfunds, separate accounts of insurance companies, pension plans,endowments, and trusts.

A further aspect of this example of the present invention provides thatthe method further comprises determining a cost effective strategy for atrade order using an optimization analysis of share price, liquidity,execution cost or mark-up, expected price improvement, and executionspeed.

Another example of the present invention provides, in a system forfacilitating unified trading and control for a sponsoring organization'smoney management process using a plurality of money management firms tomanage the sponsoring organization's investment portfolios, a method forassigning responsibility for trade order execution comprising:

-   -   defining a plurality of investment portfolios containing        securities, each portfolio having a particular investment        strategy;    -   assigning at least one money management firm for each investment        portfolio, wherein the at least one money management firm        provides at least one portfolio manager to make investment        recommendations for the each investment portfolio;    -   receiving at the sponsoring organization from the money        management firms investment recommendations for the plurality of        investment portfolios in the form of orders comprising a number        of units to trade for each security based on the        recommendations;    -   receiving from the sponsoring organization, for each of the        plurality of investment portfolios, compliance review parameters        comprising at least one of the regulatory laws, regulatory        rules, account restrictions, prohibited transactions, prohibited        holdings, and prospectus requirements applicable to the each        investment portfolio;    -   determining, according to the compliance review, and prior to        execution of an order, if the execution of the order would        result in a violation of at least one of the compliance review        parameters;    -   suspending, pending examination of the order, the execution of        the order if execution of the order would result in a violation        of the compliance review parameters for the associated        investment portfolio;    -   examining the suspended order to determine whether the suspended        order is canceled, modified, replaced, or approved for        execution;    -   identifying market impact parameters upon which to determine        whether expected market impact of an order is high or low;    -   determining, for each order, an organization given discretion        for executing a trade for the each order, wherein determining        the organization given discretion for executing an order depends        on whether an expected market impact of an order is low or high;    -   if the order is in compliance with the compliance review        parameters for the associated investment portfolio and the        expected market impact of the order is low such that the order        is a low touch order:        -   identifying any other low touch orders on the same side of a            trade transaction for the same security,        -   assessing, if such low touch orders are identified, a            cumulative expected market impact of all of the low touch            orders;        -   determining, for the low touch orders, a set of trade            rotation order parameters to determine an expected market            impact of the low touch orders;        -   identifying, if the expected market impact for low touch            orders on the same side of the trade transaction for the            same security exceeds the trade rotation order parameters, a            trade rotation order among the low touch orders, according            to a defined procedure for the trade rotation order that is            in compliance with regulatory requirements,        -   determining, for the low touch order, a set of algorithm            parameters to determine if the expected market impact of an            order is sufficient to utilize a trading algorithm,        -   assessing, for the low touch order, if expected market            impact exceeds the parameters for using a trading algorithm,        -   identifying, if the low touch order exceeds the trade            algorithm parameters, a trade algorithm in the execution of            the order,        -   routing the low touch trade to the sponsoring organization,            and            -   selecting at least one executing venue or broker                according to a determination of the most cost effective                strategy for the low touch trade, wherein the sponsoring                organization selects the at least one executing venue or                broker;        -   routing the low touch order, by the sponsoring organization,            to the at least one selected executing venue or broker for            execution,    -   if the order is in compliance with the compliance review        parameters for the associated investment portfolio and the        expected market impact of the order is high such that the trade        for the each order is a high touch order:        -   routing the high touch order to the money management firm            for selection of at least one executing venue or broker for            the high touch order, and        -   routing the high touch order, by the money management firm,            to the at least one selected executing venue or broker for            execution.

A further aspect of this example of the present invention provides thatwherein for a high touch order, the money management firm formulates atrade strategy for the high touch order that results in a modified ordercomprising high touch orders and low touch orders, and wherein the eachresulting order is in compliance with compliance review parameters forthe associated investment portfolio, and wherein the method furthercomprises:

routing at least one resulting low touch order to the sponsoringorganization, wherein the sponsoring organization selects at least oneexecuting venue or broker for the resulting low touch orders;

routing each resulting low touch order, by the sponsoring organization,to the at least one selected executing venue or broker for execution;

routing at least one resulting high touch order to the money managementfirm, wherein the money management firm selects the at least oneexecuting venue or broker for the resulting high touch orders; and

routing each resulting high touch order, by the money management firm,to the at least one selected executing venue or broker for execution.

A further aspect of this example of the present invention provides thatwherein for a low touch order, the method further comprises dividing thelow touch order into a plurality of smaller orders for execution androuting each low touch order to the at least one selected executingvenue or broker for execution.

A further aspect of this example of the present invention provides thatwherein identifying the trade rotation order comprises:

-   -   determining the trade order rotation for execution between a sub        advisor initiating the trade and the at least one sponsoring        organization acting as advisor or administrator for the        respective investment portfolio or plurality of investment        portfolios; and    -   determining the trade order rotation among the plurality of        sponsoring organizations acting as advisor or administrator for        the respective investment portfolio or plurality of investment        portfolios.

A further aspect of this example of the present invention provides thatthe method further comprises aggregating low touch orders, wherein lowtouch orders on the same side of a trade for an issue for at least onesponsoring organization are aggregated into a single block for tradingand, once executed, units are allocated among the sponsoringorganizations.

A further aspect of this example of the present invention provides thatwherein the sponsoring organization crosses orders on one side of anissue generated by the investment portfolios of the sponsoringorganization against orders on the opposite side of the same issuegenerated by additional investment portfolios of the sponsoringorganization.

A further aspect of this example of the present invention provides thatthe method further comprises providing updates to the sponsoringorganization on remaining open orders for the sponsoring organization'sinvestment portfolios, wherein the money management firm provides datato the sponsoring organization with respect to at least onepartially-filled open orders that remain eligible for further tradingactivity on trading days following the current trading day.

A further aspect of this example of the present invention provides thatthe method further comprises overriding assignment of executiondiscretion of high and low touch orders, wherein one of the moneymanagement firm and the sponsoring organization override the executiondiscretion assignment of an order in order for one of:

the money management firm to assign execution discretion over theexecution of the high touch order to the sponsoring organization;

the money management firm to assign execution discretion over theexecution of the low touch order to money management firm;

the sponsoring organization to assign execution discretion over theexecution of the low touch order to the money management firm; and

the sponsoring organization to assign execution discretion over theexecution of the high touch order to the sponsoring organization.

A further aspect of this example of the present invention provides thatthe method further comprises assigning and updating execution assignmentparameters, wherein the rules and procedures implemented to determineassignment of discretion over an order to one of the sponsoringorganization and the money management firm are created, modified andmaintained, in real-time, in an agreed procedure by the money managementfirm and the sponsoring organization.

A further aspect of this example of the present invention provides thatthe method further comprises assigning and updating, in real-time, bythe sponsoring organization for the at least one investment portfolio,the compliance review parameters.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation request bythe money management firm, receiving a denial of the order cancellationrequest from the sponsoring organization, and denying the ordercancellation request.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation request bythe money management firm, and implementing, by the sponsoringorganization, the order cancellation request for remaining unexecutedunits of the original order.

A further aspect of this example of the present invention provides thatthe method further comprises receiving an order cancellation requestinitiated by the sponsoring organization for an order from the moneymanagement firm.

A further aspect of this example of the present invention provides thatwherein assets of the each investment portfolio comprise one ofregistered mutual funds, non-registered mutual funds, institutionalinvestment portfolios, variable insurance funds, variable fund LLCs,regulated investment company funds, defined contribution plans, 529plans, hedge funds, group annuities, collective investments, deferredcompensation plans, separately managed accounts (SMAs), institutionalfunds, separate accounts of insurance companies, pension plans,endowments, and trusts.

Another example of the present invention provides a system forfacilitating unified trading and control for a sponsoring organization'smoney management process using a plurality of money management firms tomanage the sponsoring organization's investment portfolios, and forassigning responsibility for trade order execution, the systemcomprising:

-   -   a computer user interface configured to        -   receive a designation of a plurality of investment            portfolios containing securities, each portfolio having a            particular investment strategy,        -   receive instructions from money management firms to create,            enter, modify and cancel orders for the plurality of            investment portfolios, and        -   receive orders to trade securities of the plurality of            investment portfolios;    -   a communications computer module configured to communicate        through an external communications network with a sponsoring        organization order management system and a money management firm        order management system;    -   a translation computer module configured to translate        communications from the sponsoring organization order management        system and the money management firm order management system        into a standard data format;    -   a rules-based compliance computer module configured to store and        apply compliance review parameters of the plurality of        investment portfolios; and    -   a decision analysis computer module configured to determine an        organization given discretion for executing a trade for a        particular order based on market impact parameters that define        whether expected market impact of the particular order is low or        high,    -   wherein the computer user interface is configured to receive        from the money management firm order management system an order        to trade a security and transmit the order to the translation        computer module,    -   wherein the translation computer module is configured to        translate the order into the standard data format and transmit        the translated order to the rules-based compliance computer        module,    -   wherein the rules-based compliance computer module is configured        to        -   determine if a violation of the compliance review parameters            of the associated investment portfolio would occur as a            result of execution of the order,        -   suspend execution of the order until receiving one of a            cancel instruction from the money management firm order            management system, a replace instruction from the money            management firm order management system, and a release            instruction from the sponsoring organization order            management system, and        -   determine, at any time, if an investment portfolio is in            compliance with its compliance review parameters, and if a            violation is found, forward instructions to the money            management firm order management system outlining actions            needed to return the investment portfolio back to compliance            with its compliance review parameters,    -   wherein the decision analysis computer module is configured to        -   receive the order after the order has been determined to be            in compliance with applicable compliance review parameters,            and        -   determine, based on the market impact parameters, whether            expected market impact of the order is high or low,    -   wherein, if the decision analysis computer module determines the        expected market impact to be low such that the order is a low        touch order, then        -   the decision analysis computer module is configured to            -   identify any other low touch orders on the same side of                a trade transaction for the same security,            -   determine, if such low touch orders are identified, a                cumulative expected market impact of all of the low                touch orders;            -   determine, for the low touch orders, a set of trade                rotation order parameters;            -   determine if the expected market impact for the low                touch orders on the same side of a trade transaction for                the same security exceeds the trade rotation order                parameters,            -   identify, if the expected market impact for the low                touch orders on the same side of the trade transaction                for the same security exceeds the trade rotation order                parameters, a need for a trade rotation order among the                low touch orders, according to a defined procedure for                the trade rotation order that is in compliance with                regulatory requirements,            -   determine, for the low touch order, a set of algorithm                parameters to determine if expected market impact of an                order is sufficient to use a trading algorithm,            -   determine, for the low touch order, if the expected                market impact exceeds the parameters for using a trading                algorithm,            -   identify, if the low touch order exceeds the trade                algorithm parameters, a need for a trade algorithm in                the execution of the order,            -   create a message containing instructions that the order                is approved, that the order is categorized as low touch,                and, for a low touch order or group of low touch orders                exceeding at least one of the applicable trade rotation                and trade algorithm parameters, a recommendation of at                least one of a trade rotation order, an algorithm, and a                trade rotation order and algorithm, and            -   forward the message to the translation computer module,        -   the translation computer module is configured to translate            the message into a data format accepted by the sponsoring            organization order management system and forward the            translated message to the communications computer module,        -   the communications computer module configured to forward the            translated message to the sponsoring organization order            management system, so that the sponsoring organization order            management system can select at least one executing venue or            broker according to a determination of the most cost            effective strategy for the low touch order and route the low            touch order to the selected executing venue or broker,    -   wherein, if the decision analysis computer module determines the        expected market impact to be high such that the order is a high        touch order, then        -   the decision analysis computer module is configured to            -   create a message containing instructions that the order                is approved and categorized as high touch, and            -   forward the message to the translation module,        -   the translation computer module is configured to translate            the message into a data format accepted by the money            management firm order management system and to forward the            translated message to the communications computer module,            and        -   the communications computer module configured to forward the            translated message to the money management firm order            management system, so that the money managements firm can            select at least one executing venue or broker according to a            determination of the most cost effective strategy for the            high touch order and route the high touch order to the            selected executing venue or broker.

A further aspect of this example of the present invention provides thatthe system further comprises an administrative computer moduleconfigured to accept messages from a computer user interface and enableusers to: set up user roles and permission schema, including users andviewers for sponsoring organization, sub-advisors and systemadministrator; accept a data feed from the sponsoring organization ordermanagement system to set up, modify or remove investment portfolios;activate submission of orders from the investment account; and requestand send updates to the database module for purposes of updatingdatabase records.

A further aspect of this example of the present invention provides thatthe system further comprises a software order entry module configured toaccept messages from a computer user interface and enables users toengage in transactions related to entry and execution of orders through:submission of a single order or group of orders; order cancel requests;order cancel request status; order execution fill; order execution fillcorrections; order cancel confirmations; order cancel partial fills;order replace; compliance review hold order; compliance review approveorder; compliance review release order for execution; updating of openGood Til Cancel (GTC) orders; testing rules and their parameters forcategorizing orders as high touch or low touch; and requesting andsending updates to a database module for purposes of updating databaserecords.

A further aspect of this example of the present invention provides thatthe system further comprises a software rules module that enables users,through a computer user interface at sponsoring organizations andsub-advisors, to: create, modify activate, deactivate and eliminaterules, according to their agreed procedures, for the assignment ofdiscretion over the execution of order through the categorization oforders as high touch or low touch; specify tests, measures, andparameters for categorizing orders as high touch or low touch; createand modify pre set levels; create exceptions to rules for accounts,group of accounts, individual issues and groups of issues; createparameters for algorithms and trade rotation order suggestions for lowtouch orders; and request and send updates to a database module forpurposes of updating database records.

A further aspect of this example of the present invention provides thatthe system further comprises a software operations module that enablesusers, through a computer user interface at the sponsoring organizationsand sub-advisors, to perform operations comprising: start and stop thesystem; recover from lost data feed; monitor current operating status;login and log out of the system; track orders and internal processingerrors; utilize a heartbeat function to check on connectivity withexternal users; and request and send updates to a database module forpurposes of updating database records.

A further aspect of this example of the present invention provides thatthe system further comprises a software reporting module that enablesusers, through a computer user interface, at the sponsoringorganizations and sub-advisors, to perform reporting functionscomprising: viewing rules and related tests, measures, parameters, andexceptions; viewing routing statistics for orders; performing real-timequeries of a database module; viewing order discretion assignment auditreports and archives; viewing overrides of order discretion assignmentsby users; viewing lost and incomplete orders; viewing open Good TilCancel (GTC) orders; operating a data export facility; and viewingreports from a database module.

A further aspect of this example of the present invention provides that,wherein, for a specific order, the decision analysis computer module isconfigured to: gather market data; compile rules; perform requiredcalculations; evaluate results of the calculations; categorize thespecific order as one of high touch, low touch, low touch algo, lowtouch TRO, and low touch algo TRO; add compliance review status; createa message for users to receive the categorization and compliance reviewstatus; route the message to a translation module; and request and sendupdates to a database module for purposes of updating database records.

A further aspect of this example of the present invention provides thatthe system further comprises a software database module that functionsas a primary repository for all current and historical data andarchiving of necessary data and whose field structure includes data on:securities; accounts; organizations including sponsoring organizations,money management firms and system administrators; rules with tests,measures, and parameters; pre set levels; exceptions by accounts, groupsof accounts, symbols, and groups of symbols; users, roles, andpermissions; active and deactivated accounts; order routing decisionsand overrides; canceled and replaced orders; lost orders and operationalstatistics such as CPU utilization; updates with the other functionalmodules within the system; and archived data and activity.

A further aspect of this example of the present invention provides thatwherein the system is configured to receive data feeds comprising:

-   -   market data feed, and    -   messages originating from sponsoring organizations and        sub-advisors regarding new organizations, order entry,        cancellation and correction of orders, compliance status, new        and activated accounts, trade fill reports, changes in rules,        user updates, and associated operational information.

A further aspect of this example of the present invention provides thatwherein the system is configured to create messages composed of variousfields within database records in the standard data format, and toutilize the messages to communicate events to users comprising: neworders; new orders with high touch-low touch decision; high touch to lowtouch override; high touch Good Til Cancel (GTC) updates; compliance=OK;compliance under review; order released from compliance; cancel orderrequest; cancel response—cancel confirmed; cancel response—cancelrejection; cancel response—cancel unfilled portion of order; sponsoringorganization initiated cancel; execution fill; execution fillmodification; empty message (heartbeat); and order error.

A further aspect of this example of the present invention provides thatwherein if a trade strategy for the high touch order results in amodified order comprising high touch orders and low touch orders and theeach resulting order is in compliance with the compliance reviewparameters for the investment portfolio,

-   -   the system is configured to        -   route the low touch orders to the sponsoring organization            order management system for selection of at least one            executing venue or broker and to route the low touch orders            to the selected at least one executing venue or broker for            execution, and        -   route the high touch orders to the money management firm            order management system for selection of at least one            executing venue or broker and to route the high touch orders            to the selected at least one executing venue or broker for            execution.

A further aspect of this example of the present invention provides thatwherein the sponsoring organization order management system isconfigured to transform a low touch order into a plurality of smallerorders and to route each smaller order to the selected at least oneexecuting venue or broker for execution.

A further aspect of this example of the present invention provides thatwherein the system is configured to implement a trade order rotationaccording to a computer-defined procedure that is applicable when amoney management firm places a plurality of orders on the same side of abuy or sell order in a given security for execution across a pluralityof investment portfolios belonging to a plurality of sponsoringorganizations.

A further aspect of this example of the present invention provides thatwherein the system is configured to determine trade order rotation by:

-   -   determining the trade order rotation for execution between a sub        advisor initiating the trade and the sponsoring organization or        plurality of sponsoring organizations acting as advisor or        administrator for the respective investment portfolio or        plurality of investment portfolios; and    -   determining the trade order rotation among the plurality of        sponsoring organizations acting as advisor or administrator for        the respective investment portfolio or plurality of investment        portfolios.

A further aspect of this example of the present invention provides thatwherein the system is configured to implement a trade rotation ordercomprising one of random selection, sequential selection, andalgorithmic random selection.

A further aspect of this example of the present invention provides thatwherein the system is configured to aggregate trades, wherein low touchorders on the same side of a buy or sell for the same security for theat least one sponsoring organization are aggregated into a single blockfor trading and, once executed, units are allocated among the at leastone sponsoring organization.

A further aspect of this example of the present invention provides thatwherein the sponsoring organization order management system isconfigured to cross orders for a security generated by investmentportfolios of at least one sponsoring organization against orders forthe opposite side of the security generated by additional investmentportfolios of at least one sponsoring organization.

A further aspect of this example of the present invention provides thatwherein the system is configured to transmit a communications messagefrom the money management firm order management system to the sponsoringorganization order management system comprising data records summarizinga status of an individual or a plurality of open or partially filledorders (Good Til Cancel or GTC) that remain eligible for further tradingactivity on trading days following the current or recently concludedtrading day.

A further aspect of this example of the present invention provides thatwherein the system is configured to receive a message overridingexecution discretion authority from one of the money management firmorder management system and the sponsoring organization order managementsystem, wherein the message overrides a discretion assignment of a tradeorder in order for one of:

the money management firm to assign discretion over the execution of thetrade order to the sponsoring organization;

the money management firm to assign discretion over the execution of thetrade order to the money management firm;

the sponsoring organization to assign discretion over the execution ofthe trade order to the money management firm; and

the sponsoring organization to assign discretion over the execution ofthe trade order to the sponsoring organization.

A further aspect of this example of the present invention provides thatwherein the system is configured to receive assignments and updates ofmarket impact parameters through a computer user interface, wherein themarket impact parameters are created, modified, activated, deactivatedand maintained, in real-time.

A further aspect of this example of the present invention provides thatwherein the system is configured to

receive an order cancellation request from the money management firmorder management system requesting cancellation of an order submitted bythe money management firm,

receiving instructions from the sponsoring organization order managementsystem to deny the order cancellation request, and

denying the order cancellation request.

A further aspect of this example of the present invention provides thatwherein the system is configured to

receive an order cancellation request from the money management firmorder management system requesting cancellation of an order submitted bythe money management firm, wherein the submitted order is partiallyexecuted, and

issue instructions to the sponsoring organization order managementsystem implement the order cancellation request for the remainingunexecuted shares of the submitted order.

A further aspect of this example of the present invention provides thatwherein the system is configured to

receive an order cancellation request from the sponsoring organizationorder management system requesting cancellation of an order submitted bythe money management firm, and

forward a message to the money management firm order management systemto initiate a cancel request for the submitted order from the moneymanagement firm.

A further aspect of this example of the present invention provides thatwherein the system is configured to implement standards forcommunications with the sponsoring organization order management systemand the money management firm order management system, the standardscomprising a designated communications protocol, a designated messageformat, and a designated communications network.

A further aspect of this example of the present invention provides thatwherein the sponsoring organization software order management systemdetermines the most cost effective strategy for a trade order using anoptimization analysis of share price, liquidity, execution cost ormark-up, expected price improvement, and execution speed.

Another example of the present invention provides a system forfacilitating unified trading and control for a sponsoring organization'smoney management process using a plurality of money management firms tomanage the sponsoring organization's investment portfolios, and forassigning responsibility for trade order execution, the systemcomprising:

-   -   a computer user interface configured to        -   receive a designation of a plurality of investment            portfolios containing securities, each portfolio having a            particular investment strategy,        -   receive instructions from money management firms to create,            enter, modify and cancel orders for the plurality of            investment portfolios, and        -   receive orders to trade securities of the plurality of            investment portfolios;    -   a communications computer module configured to communicate        through an external communications network with a sponsoring        organization order management system and a money management firm        order management system;    -   a translation computer module configured to translate        communications from the sponsoring organization order management        system and the money management firm order management system        into a standard data format;    -   a rules-based compliance computer module configured to store and        apply compliance review parameters of the plurality of        investment portfolios; and    -   a decision analysis computer module configured to determine an        organization given discretion for executing a trade for a        particular order based on market impact parameters that define        whether expected market impact of the particular order is low or        high,    -   wherein the computer user interface is configured to receive        from the money management firm order management system an order        to trade a security and transmit the order to the translation        computer module,    -   wherein the translation computer module is configured to        translate the order into the standard data format and transmit        the translated order to the rules-based compliance computer        module,    -   wherein the rules-based compliance computer module is configured        to        -   determine if a violation of the compliance review parameters            of the associated investment portfolio would occur as a            result of execution of the order,        -   suspend execution of the order until receiving one of a            cancel instruction from the money management firm order            management system, a replace instruction from the money            management firm order management system, and a release            instruction from the sponsoring organization order            management system, and    -   wherein the decision analysis computer module is configured to        -   receive the order after the order has been determined to be            in compliance with applicable compliance review parameters,            and        -   determine, based on the market impact parameters, whether            expected market impact of the order is high or low,    -   wherein, if the decision analysis computer module determines the        expected market impact to be low such that the order is a low        touch order, then        -   the decision analysis computer module is configured to            -   identify any other low touch orders on the same side of                a trade transaction for the same security,            -   determine, if such low touch orders are identified, a                cumulative expected market impact of all of the low                touch orders;            -   determine, for the low touch orders, a set of trade                rotation order parameters;            -   determine if the expected market impact for the low                touch orders on the same side of a trade transaction for                the same security exceeds the trade rotation order                parameters,            -   identify, if the expected market impact for the low                touch orders on the same side of the trade transaction                for the same security exceeds the trade rotation order                parameters, a need for a trade rotation order among the                low touch orders, according to a defined procedure for                the trade rotation order that is in compliance with                regulatory requirements,            -   determine, for the low touch order, a set of algorithm                parameters to determine if expected market impact of an                order is sufficient to use a trading algorithm,            -   determine, for the low touch order, if the expected                market impact exceeds the parameters for using a trading                algorithm,            -   identify, if the low touch order exceeds the trade                algorithm parameters, a need for a trade algorithm in                the execution of the order,            -   create a message containing instructions that the order                is approved, that the order is categorized as low touch,                and, for a low touch order or group of low touch orders                exceeding at least one of the applicable trade rotation                and trade algorithm parameters, a recommendation of at                least one of a trade rotation order, an algorithm, and a                trade rotation order and algorithm, and            -   forward the message to the translation computer module,        -   the translation computer module is configured to translate            the message into a data format accepted by the sponsoring            organization order management system and forward the            translated message to the communications computer module,        -   the communications computer module configured to forward the            translated message to the sponsoring organization order            management system, so that the sponsoring organization order            management system can select at least one executing venue or            broker according to a determination of the most cost            effective strategy for the low touch order and route the low            touch order to the selected executing venue or broker,    -   wherein, if the decision analysis computer module determines the        expected market impact to be high such that the order is a high        touch order, then        -   the decision analysis computer module is configured to            -   create a message containing instructions that the order                is approved and categorized as high touch, and            -   forward the message to the translation module,        -   the translation computer module is configured to translate            the message into a data format accepted by the money            management firm order management system and to forward the            translated message to the communications computer module,            and        -   the communications computer module configured to forward the            translated message to the money management firm order            management system, so that the money managements firm can            select at least one executing venue or broker according to a            determination of the most cost effective strategy for the            high touch order and route the high touch order to the            selected executing venue or broker.

5) Price—Liquidity—Cost—Quality (PLCQ) Engine

The price—liquidity—cost—quality (PLCQ) engine is a graphical userinterface (GUI) and associated software program(s) linked to acomputerized, real-time and customizable rules-based logic engine thatenables each buy or sell order (or combinations of buy and sell orders)to be analyzed, according to a set of customizable logical rules, todetermine, through an optimization process, the most cost effectiveorder composition in terms of one or more of share price, number ofshares, execution cost or mark-up, expected price improvement, andexecution speed. The output of the price—liquidity—cost—quality (PLCQ)engine is a list of the executing brokers, share price, number ofshares, execution cost or mark-up, expected price improvement, andexecution speed for the sponsoring organizations and sub-advisor toutilize in selecting executing brokers for their orders.

The price per share, number of shares and execution costs or mark-upsare based on actual data gathered through real-time market data feedsand inputs from executing brokers. The price per share and number ofshares reflect current market data. The execution cost or mark-up pershare reflects the real-time cost entered into theprice—liquidity—cost—quality (PLCQ) engine by the executing brokers andcan vary on a security-by-security basis and over time (as executingbrokers adjust their executions costs or mark-ups to reflect theirdesire to accumulate, reduce, or liquidate their position in asecurity).

The trade quality analysis engine provides a real-time and customizableanalysis of the historical and expected price improvement for eachsecurity, by executing broker, in an order. Currently, orders areexecuted at the National Best Bid and Offer (Ask) or NBBO. As such, anequity issue may be available to buy at $42.25 per share (ask or offer)and to sell at $42.00 per share (bid). The difference between the bidand offer (ask) is the spread ($0.25). As such, the ideal price pointbetween the bid and offer is the Mid Point between Bid and Offer (MPBO).For this security, the midpoint between bid and offer is $42.125 pershare. The trade quality engine performs a real-time analysis of theshare prices and times of execution for recently executed trades todetermine how close the share price for a trade was to the MPBO. Therange of such a calculation could range from a trade occurring at a$42.125 (at the MPBO, which is a 0% effective to quoted spread.) (Whileit is possible, orders are rarely executed below the MPBO.) A buy orderoccurring at $42.25 or a sell order occurring at $42.00 is considered100% of the NBBO and does not provide any price improvement, whichequates to a 100% effective-to-quoted spread. Unfortunately, orders canalso be executed above the spread (above $42.25 on a buy or below $42.00on a sell). These transactions are considered “outside the spread” and,as a result, these trades have an effective-to-quoted spread thatexceeds 100%. The effective-to-quoted analysis is performed for eachorder and the time period utilized for this analysis is customizable andperformed for periods of time ranging from sub-seconds to minutes,hours, days, and longer, according to the desires of the user. Anoptimization engine that calculates the most cost effective group ofexecuting brokers for the order, then utilizes this data. This data isthen transmitted to the order management system of the sub-advisor orsponsoring organization.

The quality data can also include factors such as speed of execution,which reflects the time that is required for an executing broker, uponreceipt of the order, to complete the execution of the order.

Currently, the securities industry focuses on share price and liquidity(“best execution”) when determining the optimal order composition. Theprice—cost—liquidity—quality (PLCQ) engine's capacity to factor inadditional real-time and customizable factors, such as execution costand expected price improvement, represents a considerable step forwardin providing shareholders and plan beneficiaries with the lowest totalexecution cost in a routine and automated manner.

FIG. 12A is a schematic diagram illustrating theprice—cost—liquidity—quality (PLCQ) engine's 1201 system and process1200, according to an embodiment of the present invention. The process1200 works as described in the following steps, which correspond to thearrows and their adjacent reference numerals shown in FIG. 12.

1225) Sub-advisors 301 and sponsoring organizations 304 and 1116transmit their individual orders to the price—liquidity—cost—quality(PLCQ) engine through the graphical user interface (GUI) 1202 or througha data feed from their order management system 503 (not shown).

1226) The order is entered into the price—cost—liquidity database 1203.

1227) Executing brokers 202 utilize a graphical user interface (GUI)1204 to enter the execution costs 1204 for orders into theprice—cost—liquidity—quality (PLCQ) engine 1201. The execution cost data1204 can be changed on a real-time basis for each security.

1228) The execution cost data 1204 is incorporated into theprice—liquidity—cost database 1203.

1229) Real-time market data 1205 is delivered to theprice—cost—liquidity—quality engine 1201 and incorporated into theprice—liquidity—cost database 1203.

1230) The price—liquidity—cost data is incorporated into the executionquality analysis engine 1206.

1231) The system archive 1207 for the execution quality analysis engine1206 provides real-time and historical data on the quality of execution,that is, the effective-to-quoted spread to the execution qualityanalysis engine 1206.

1232) The execution quality analysis engine 1206 combines theprice—liquidity—cost data and the real-time and historical data anddelivers the data to the order optimization engine 1208.

1233) The data 1209 incorporates the share price, number of sharesavailable from each executing broker, execution cost or mark-up, brokeridentification, and quality of execution (calculated effective-to-quotedspread).

1234) The order optimization engine 1208 combines the lowest executioncost based on the price—liquidity—cost data and factors in the expectedprice improvement data to determine, through the optimization process,the most cost effective combination of executing brokers for the order.For this order, the most cost effective group of brokers combine for anexecution cost of $69.00 with an expected price improvement resultingfrom an effective-to-quoted spread of 10% for 11,000 shares, 20% for2,000 shares, and 25% for 7,000 shares.

1235) The order optimization engine 1208 routes the optimized executingbroker combination to the graphical user interface 1202.

1236) The sub-advisors 301 and sponsoring organizations 304 and 1116 (orany asset manager 201) utilizes the graphical user interface 1202 (ordata feed) to review the optimized executing broker combination for thatorder for use in the order entry process 700 (not shown).

The price—cost—liquidity—quality (PLCQ) engine 1201 is unique in that itperforms a real-time computer analysis and subsequent assigning ofexecution costs and expected execution quality relative to current shareprice and liquidity offered by a network of executing brokers. Thisautomated, real-time, and customizable capability does not exist in theprior art and represents a technology innovation in the system of thepresent invention.

Further aspects of a price—cost—liquidity—quality (PLCQ) engine (e.g.,as disclosed in FIG. 12A and steps 1225 through 1236 above) are asfollows.

An embodiment of the present invention provides a real-time optimizationprocess that enables an initiating party to a securities transaction(such as a mutual fund company, institutional money manager, hedge fund,insurance company, pension plan, individual investor, etc.) to conduct areal-time optimization analysis for determining the “hot hitter” amongexecuting broker(s) (and the optimal order among a plurality ofexecuting brokers) expected to provide the lowest expected totalexecution cost for a securities transaction, inclusive of share price,liquidity, execution costs, price improvement, time to execute, and rateof change in the price of a security. This optimization also providesthe optimal order among a plurality of executing brokers expected toprovide the lowest expected total cost for the securities transactionuntil the desired number of instruments is bought or sold. As theinitiating party to the transaction directs orders to the executingbrokers with the lowest expected total cost for their securitiestransaction (and implements such an optimization process as part of aroutine operating procedure for trading securities), the initiatingparty realizes significant and recurring cost savings that would nototherwise be realized in its securities transactions. An embodiment ofthe present invention is applicable to a single order or, in analternative embodiment, to each individual order created through atrading algorithm that divides a single larger order into a series ofsmaller sub-orders. Indeed, the present invention is especially wellsuited for optimizing the execution of small orders.

For example, the concept of selecting the “hot hitter” in executingbrokers has a logical resemblance to the process through which a managerof a baseball team selects a pinch hitter during the late innings of aclose baseball game. The manager for a baseball team will examine allthe relevant statistics among the players available for pinch-hittingduty. One statistic that is likely to weigh heavily in the selectionprocess is the individual batting averages of the available players overthe last five to ten games. A manager would be more likely to select topinch hit, all other factors being equal, a player hitting over 0.300over the last five games than a player hitting under 0.200 over the lastfive games. In the same manner, an initiating party would desire to senda securities transaction to such a “hot hitting” executing broker, as ismade possible by the system and process of the present invention, whichfacilitate an optimization analysis and inform the initiating party ofthe identity and associated statistics of the “hot hitting” executingbroker(s).

An embodiment of the present invention incorporates an optimizationprocess analyzing real-time and recent data to determine the executingbrokers who are the “hot hitters”—that is, the executing brokersproviding the lowest expected total execution cost for a transaction ina given security at a particular moment in time (the time in which theorder is ready for execution in the market). Given the nature of thistype of analysis, the “hot hitter” (or “hit hitters” for larger orders)among executing brokers is likely to vary over time according to: (1)the individual security and the security type in the transaction; (2)the most recent trades in the security; (3) the time period utilized inthis analysis; (4) the number of shares recently traded in the security;(5) the number of orders executed recently in the security; (6) thespeed in which the share price of a security is moving up or down (themarket velocity); (7) by buy or sell orders; (8) the order size; (9) thespeed in which the executing broker can complete the trade (time toexecute); and (10) other similar factors that impact the overall qualityof execution for a securities transaction.

The result of the optimization analysis is that a given securitiestransaction (such as a buy or sell order) is analyzed according toreal-time and recent market data including:

The most favorable quoted share price for the security;

The number of shares available from an executing broker (or a pluralityof executing brokers) at the most favorable quoted share prices(liquidity);

The execution cost (usually in cents per share, although sometimes basispoints are utilized) posted by executing brokers;

The recent price improvement provided by the various executing brokers;

The speed of execution (time to execute) by the executing brokers; and

The current rate of change in the price of a security.

As a final output, an embodiment of the present invention conducts anoptimization analysis that incorporates the above parameters throughreal-time and recent data inputs and produces the executing broker or alist of executing brokers that provides the lowest expected totalexecution cost for a securities transaction. The embodiment of thepresent invention is a real-time process that strives to minimize anylatency effect by utilizing: (1) the most current market data availablewith respect to shares prices, shares available and the executingbroker; and (2) the fastest possible analytical process involving themarket data. The result of this quest for speed and accuracy is that,before another party can buy or sell the desired shares, the partyinitiating the securities transaction is able to automatically routeorders to the designated lowest cost executing brokers or, if suchintegration is unavailable, either electronically or manually upload theorders to another system capable of routing orders to these designatedexecuting brokers.

The data for the most favorable quote for a security, for the quotes forthe subsequent most favorable share prices (known as the depth of themarket), and for the number of shares available per price from variousexecuting brokers (liquidity) is provided through a real-time marketdata feed. There are numerous vendors providing this type of data.

In an embodiment of the present invention, the execution costs (usuallycents and/or fractions of cents per share) are determined by theexecuting broker and communicated through a graphical user interface(GUI) that enables an executing broker to set and change prices on areal-time basis. (Execution costs could also be set contractually andnot changed in real-time). Alternatively, the executions costs can becommunicated through other means, such as through reports on paper. Anexecuting broker's pricing could be determined by: (1) security; (2)groups of securities; (3) buy or sell orders; (4) orders that add orremove liquidity from their order books; and (5) size of orders. Theexecution costs can also vary according to the following mutuallyexclusive conventions, including: (1) listed or OTC securities; (2)domestic or international securities; (3) market or limit orders; (4)day or good-to-cancel orders; (5) orders executed by the broker orpassed through to another broker for execution; and (6) other similarconventions.

The total expected execution cost could be customized based on thedifferent types of orders, which types each affect pricing differently.For example, determining the total expected execution cost can becustomized, in real-time, based on customized parameters such as whetherthe order involves listed securities or OTC securities, whether theorder is domestic or international, whether the order is a market orderor a limit order, whether the order is a good-to-cancel order or a dayorder, whether the order involves a large quantity of units or a smallquantity of units, or whether the order must be passed through toanother venue for execution (e.g., for regulatory reasons).

An executing broker, through the real-time capability to updateexecution costs, has the capability to respond to its business needs andcircumstances through real-time alterations to its execution costschedule. The result of any change is an immediate impact on theoptimization analysis to determine lowest expected total execution costfor a securities transaction. For example, an executing broker whodesires to liquidate excess inventory in a given security may lower theexecuting cost for an order or, alternatively, pay a rebate for orderflow to the initiating party until such inventory has been sold. Anexecuting broker could also acquire inventory in a security through asimilar process of customizing execution costs (or paying for orderflow). In both examples, an embodiment of the present inventionimmediately incorporates the revised (more favorable) execution cost inthe optimization analysis for determining the executing brokersproviding the lowest expected total execution cost for a particularsecurities transaction, with the result that this executing brokerappear more favorably in the rankings of executing brokers providing thelowest expected total cost execution.

The executing brokers are enabled, through an embodiment of the presentinvention, to use a real-time marketplace for execution costs to conducta wide variety of real-time sales strategies (such as discounts,inventory acquisition and liquidation, etc.) across a wide swath ofsecurities in order to attract order flow to their company. Thisflexibility with respect to sales strategies enables the executingbroker to more efficiently attract vital order flow to its organization.Order flow (the volume of shares directed to its organization forexecution) is critical to the financial well-being of an executingbroker, as order flow is a necessary pre-condition to generatingrevenues for its organizations. An embodiment of the present inventionimmediately and automatically incorporates the changes in theirexecution costs into the optimization analysis.

An embodiment of the present invention also incorporates a real-timecalculation of expected price improvement in securities transactions.Such an analysis reflects the variation of share prices executedrelative to the National Best Bid and Offer (NBBO).

FIG. 12B illustrates an example of a National Best Bid and Offer 1225with a security trading at a National Best Offer (the price at which abuyer may acquire the security) of $42.02 per share and a National BestBid (the price at which a seller may sell the security) of $42.00 pershare. The spread (the difference between Bid and Offer is $42.02 less$42.00, or $0.02 per share (two cents per share)). Ideally, the spread(two cents per share) is retained by the executing broker (or exchange)as compensation for providing the service of executing the transaction(acting as a broker) between the buyer and seller of the security.

A buyer and seller of a security, in order to get the best possibleshare price (a higher share price for the seller and a lower share pricefor the buyer), will endeavor to obtain the closest possible share priceto the Midpoint Between Bid and Offer (MBBO). In FIG. 12B, the MBBO is$42.01 per share. As a result, when a purchase of a security occurs at ashare price lower that the National Best Offer ($42.02 per share in thisexample) or the sale of a security occurs at a higher price than theNational Best Bid ($42.00 per share in this example), the correspondingbenefit is referred to as price improvement.

In FIG. 12B, the MBBO is $42.01 per share and, in this example, atransaction price of $42.015 would represent a one-half cent per shareprice improvement over the National Best Offer of $42.02 per share.Obviously, such a difference is small on an individual share basis, butsuch a benefit has the potential to accumulate to significant amountsfor a multi-billion dollar, actively traded investment portfolio overthe course of a significant time period, such as a year or longer.

An embodiment of the present invention incorporates an analysis of thetransactions executed by individual executing brokers relative to theNBBO on a security by security basis in order to determine what amount,if any, of price improvement was achieved by the initiating party (theactual buyer or seller of securities) to the transaction. A customizableoptimization analysis examines the price improvement achieved in asecurity by each executing broker over data groups such as: (1) timeperiods in terms of seconds, minutes, hours, days, etc.; (2) recenttrades such as the last five, ten, twenty-five, fifty, etc.transactions; (3) recent trades such as specific volumes of sharestraded; (4) buy or sell transactions; and (5) other similar suchgrouping mechanisms. Finally, the initiating party and the executingbroker may negotiate an agreed level of price improvement for theirtransactions.

With such data on price improvement by executing brokers for a security,the financial benefit in terms of cents (or fractions of a cent pershare) is calculated and incorporated into the optimization process fordetermining the executing broker providing the lowest expected totalexecution cost for a transaction in a specific security.

Overall, the price improvement analysis enables the initiating party toanalyze and determine the executing brokers showing favorable pricequotes and liquidity in order to determine the executing brokers thatare the “hot hitters” with respect to price improvement. As statedearlier, the optimization analysis also responds in real-time to changesin execution costs as the executing brokers change them during thetrading day. The result is that the optimization analysis, to determinethe “hot hitting” executing brokers with respect to price improvement(and execution costs), responds to actual recent performance in terms ofprice improvement by the executing brokers. In the event more than oneexecuting broker provides the lowest expected total execution cost, thenan embodiment of the present invention can allocate the shares amongthese executing brokers according to methods such as pro rata, an evendivision, or taking the shares from the executing broker offering thelargest to the smallest number of shares. As such, the present inventioncreates a real-time accountability process for price improvement (andexecution costs) that serves the best interests of the initiating partywhile simultaneously rewarding those executing brokers that provide thegreatest price improvement (and lowest execution costs) by automaticallydirecting significant order flow to their organizations.

An embodiment of the present invention also evaluates and ranks the timerequired to execute an order by the executing brokers. The time toexecute for executing brokers (which currently range from millisecondsto multiple seconds) becomes an important factor in: (1) obtaining themost favorable quote (as other parties may step up to buy or sell theavailable shares at the most favorable quote); and (2) preventing thequoted prices from moving away from the initiating party (higher pricesfor a buyer and lower prices for a seller) in times of high marketvolatility or rapid market movement (such as often happens at theopening 30 minutes or closing 30 minutes of the market).

An embodiment of the present invention also evaluates and incorporatesthe rate of change in the price of a security (market velocity). Assuch, the velocity (the rate of change in the price of a security ismoving) can become a disadvantage to an initiating party in the eventwhen an order is entered for a security where: (1) the velocity is high;and (2) the quoted price is moving away from the initiating party'sdesired price.

An embodiment of the present invention determines and ranks the timerequired to execute an order for securities and order types by executingbroker. These results are combined with the current market velocitycalculations (the rate of change in cents per second per share of asecurity) to create an expected execution speed cost factor. Theexecution speed cost factor can be expressed as the market velocity(rate in change of price, e.g., cents per second) multiplied by theexecution time (e.g., in seconds). For example, if a security's price isdropping at the rate of one-half cent per second and the executingbroker requires two seconds to execute the order, the execution speedcost factor for this hypothetical buy order is one cent per share.Obviously, the execution speed cost factor becomes more important intimes of high market volatility and less important in times of lowmarket volatility. Still, an executing broker with a fast executionspeed can expect to consistently rank higher than an executing brokerwith a considerably slower execution speed.

Overall, an embodiment of the PLCQ engine of the present inventioncombines the factors listed in the following Table 2 in a real-timeoptimization process that utilizes real-time market data and recenttrading history to determine the executing broker(s) that provides thelowest expected total execution cost:

TABLE 2 PLCQ Optimization Process Factors P Price Lowest Share PriceFrom Most Real-time Market Favorable Quote(s) Data Feed L LiquidityShares Available From an Executing Real-time Market Broker at a QuotedPrice Data Feed C Cost Execution Cost per Share as Input by Real-timeEntry an Executing Broker by Executing Broker Q Quality PriceImprovement Provided on a Calculated From Security by an ExecutingBroker Recent Trade Data Quality Execution Speed (Time Required toCalculated From Execute an Order) Recent Trade Data Quality Rate ofChange in the Price of a Calculated From Security Recent Trade Data

FIG. 12C is an exemplary illustration of how an embodiment of thepresent invention operates with respect to real-time market parametersand three executing brokers (A, B, and C). The market parameters 1226 atthe time an initiating party enters an order are as follows:

(1) The share price is $42.00 per share.

(2) The order size is buy 4,500 shares.

(3) The spread on the security (the difference between the bid andoffer) is one and one half cents ($0.0015).

(4) The security velocity (the current rate of change in the price ofthe bid and offer) is one quarter of a cent per second ($0.0025/second).

FIG. 12C also provides the executing broker parameters 1227 forexecuting brokers A, B, and C with respect to their following respectiveparameters: number of shares available at the quoted share price(liquidity); their respective cost per share to execute the order; theirmost up-to-date price improvement statistics (e.g., including executingbroker A's trades executed outside the spread at 110%—a poor quality ofexecution); and time to execute an order.

FIG. 12C further provides the expected total execution cost per share1228 for all available shares for each executing broker. As such, whenutilizing the most favorable quote price and adjusting for executioncost per share, price improvement, and execution speed by convertingthese factors into cents per share, expected total execution cost pershare can be calculated using the following exemplary formula:

Expected Total Execution Cost Per Share=Share price+/−execution cost pershare+/−expected price improvement+/−execution speed(time to execute thetrade*rate of change in the price of the security).

The result of this calculation is as shown in the following Table 3:

TABLE 3 Expected Total Execution Cost Per Share Executing TotalExecution Broker Cost per Share A $42.0340 B $42.0025 C $42.0210

In different embodiments of the present invention, various weightingsand probabilities could be assigned to the factors and the manner inwhich the factors (e.g., quoted unit price, current execution costs,expected price improvement, and expected execution speed) are combinedand incorporated into the calculation of this formula. In oneembodiment, total expected execution cost is customized based oncustomized input received, in real-time, from the party initiating thesecurities transaction. That customized input can include, for example,weightings, statistical analysis, probabilities, types of orders, andnumerical parameters determining the calculation of expected priceimprovement and expected execution cost, as well as instructions as tohow the factors are combined and incorporated into a calculation of thetotal expected execution cost.

FIG. 12D provides an exemplary illustration of the result of theoptimization analysis with respect to the determination of the executingbroker(s) providing the lowest expected total execution cost. FIG. 12Dalso illustrates how the choice of executing broker can vary accordingto three different selection methods: (1) liquidity—the executingbroker(s) with the highest number of shares available; (2) brokerexecution cost—the executing broker(s) willing to execute the order atthe lowest per share charge; and (3) expected total execution cost—whichrepresents an embodiment of the present invention optimizing real-timeand recent data on share price, liquidity, execution cost, priceimprovement, and execution speed in order to determine the executingbrokers(s) providing lowest expected total execution cost for an order.

FIG. 12D shows that the executing broker selection 1229 and optimalrankings are as follows: by liquidity, the optimal broker rankings areA, B, and C; by execution cost, the optimal broker rankings are B, A,and C; and by total execution cost, the optimal broker rankings are B,C, and A.

FIG. 12D also compares expected total execution cost 1230 and calculatesthe cost penalties from using the liquidity method and/or execution costmethod to select executing brokers compared to using the expected totalexecution cost method (an embodiment of the present invention). At a buyorder of 2,000 shares, the cost penalty for the liquidity method is$53.75 and for the execution cost method is $6.50. At 3,500 shares, thecost penalty for both the liquidity and execution cost method is $13.00.Thus, even on a single small order, there are substantial savings to berealized in favor of the initiating party. These savings accrue to farmore significant amounts when utilized by large fund groups tradingseveral billion shares annually. The cost savings in basis points areshown in Table 4 below, which may provide a more meaningful measurementof cost savings:

TABLE 4 Cost Savings In Basis Points Number of Shares Liquidity (bps)Exec Cost (bps) 500 7.50 0.00 1,000 7.50 0.00 1,500 7.50 0.00 2,000 6.400.77 2,500 4.24 1.24 3,000 2.28 1.03 3,500 0.88 0.88 4,000 0.39 0.394,500 0.00 0.00

The above savings begin to move lower as the liquidity in the example isexhausted. In essence, this phenomenon reflects the principle that, whenall the liquidity is consumed by an order, the selection of executingbroker becomes less important than in circumstances when an orderconsumes part of the available liquidity at quoted prices. Thus, thepresent invention represents an optimization of the small orderexecution process. In addition, the system of the present inventionprovides the capability to slice an order up among multiple executingbrokers when the initiating party desires greater anonymity from theexecuting brokers, with the added benefit that the system of the presentinvention slices and routes these orders to multiple executing brokersin such a manner as to also minimize the total execution cost for theorder.

FIG. 12E is an exemplary illustration of an embodiment of the presentinvention in which the optimal group of executing brokers providing thelowest expected total execution cost, when factoring in all variables,may not always utilize all the executing brokers providing the lowestquoted price for a security.

The market parameters 1231 and executing broker parameters 1232 in FIG.12E are similar to FIG. 12C, except that they are shown for fiveexecuting brokers (A, B, C, D, and E) that are quoting liquidity at twodifferent share prices ($42.00 and $42.02). The method for calculatingexpected total execution cost per share 1233 is identical to FIG. 12C,with the results shown in Table 5 as follows:

TABLE 5 Expected Total Execution Cost Per Share Executing TotalExecution Broker Cost per Share A $42.0340 B $42.0025 C $42.0210 D$42.0290 E $42.0200

FIG. 12F provides an exemplary illustration of the result of theoptimization analysis with respect to the determination of the executingbroker(s) providing the lowest total cost execution. FIG. 12F shows thatthe executing broker selection 1234 and optimal rankings are as follows:by liquidity, the optimal broker rankings are A, B, C, D, and E; byexecution cost, the optimal broker rankings are B, A, C, E, and D; andby total execution cost, the optimal broker rankings are B, E, C, D, andA.

FIG. 12F also compares expected total execution cost 1235 and calculatesthe cost penalties from using the liquidity method and/or execution costmethod to select executing brokers compared to using the total executioncost method (an embodiment of the present invention). At a buy order of2,000 shares, the cost penalty for the liquidity method is $54.25 andfor the execution cost method is $7.00. At 3,500 shares, the costpenalty for both the liquidity and execution cost method is $27.00. At abuy order of 5,500 shares, the cost penalty for the liquidity method is$19.00 and for the execution cost method is $10.00. Again, even on asingle small order, there are substantial savings to be realized infavor of the initiating party. These savings accrue to far moresignificant amounts when utilized by large fund groups trading severalbillion shares annually, as shown by the savings in basis points shownin Table 6 below:

TABLE 6 Savings In Basis Points Number of Shares Liquidity (bps) ExecCost (bps) 500 7.50 0.00 1,000 7.50 0.00 1,500 7.50 0.00 2,000 6.46 0.832,500 4.33 1.33 3,000 2.88 1.63 3,500 1.84 1.84 4,000 1.37 1.37 4,5001.00 1.00 5,000 0.90 0.69 5,500 0.82 0.43 6,000 0.65 0.30 6,500 0.510.18 7,000 0.24 0.08 7,500 0.00 0.00

FIG. 12F also provides an exemplary illustration that, under the lowestexpected total execution cost analysis, executing brokers providinglower quoted share prices may drop in the optimized broker rankingswhile lower ranked executing brokers providing higher quoted shareprices may rise in the optimized broker rankings to achieve the lowestexpected total execution cost. Both types of events are a direct resultof utilizing execution cost and quality considerations in determiningthe lowest expected total execution cost for the initiating party.

In providing a price—cost—liquidity—quality (PLCQ) engine, an embodimentof the present invention preferably includes the following systems,services, and data:

Order management system (and/or execution management system).

Connectivity network between initiating parties and executing brokers.

FIX engines for translating orders into a standard data protocol.

Network of executing brokers.

GUI for executing brokers to establish and change their execution costsin the PLCQ engine.

Real-time market data feeds.

Archive of market data on trade executions.

As a further embodiment of the system 1200 andprice—cost—liquidity—quality (PLCQ) engine 1201 shown in FIG. 12A, FIGS.12G(i) and 12G(ii) illustrate an exemplary implementation of aprice—cost—liquidity—quality (PLCQ) engine 1201, according to anembodiment of the present invention. The actors include a systemadministrator managing the price—cost—liquidity—quality (PLCQ) engine1201, an initiating party for the securities transaction 1236, and aplurality of executing brokers 202 able to provide quotes and liquidityfor the security in the transaction. The systems include a GUI(graphical user interface) 1202 for the party initiating the securitiestransaction and a GUI (graphical user interface) 1204 for the pluralityof executing brokers 202 to establish execution costs, a real-time feedfor current market data 1205, and an archive for market execution data1207.

FIGS. 12G(i) and 12G(ii) also illustrate an exemplary process of thepresent invention having the following steps, which correspond to thereference numerals shown in FIGS. 12G(i) and 12G(ii).

In step 1260 in FIG. 12G(i), an initiating party 1236 utilizes a GUI1202 to create (or receive) an order 1250 to buy or sell a security.

In step 1261, utilizing the price—liquidity—cost database 1203, theinitiating party 1236 requests real-time market quotes 1251 through amarket data feed 1205 from a plurality of executing brokers 202,including share price and number of shares available (liquidity) for thetransaction.

In step 1262, the initiating party 1236 requests data on execution costs1252 uploaded through the execution cost GUI 1204 for the plurality ofexecuting brokers 202 to establish and change, in real-time, executioncosts for various securities. The execution costs are usually quoted incents (and/or fractions thereof) per share. Execution costs can also bequoted in basis points on the transaction amount.

In step 1263, utilizing the execution quality analysis engine 1206, thesystem of the present invention conducts an analysis of priceimprovement 1253 according to the customized parameters established bythe initiating party, to determine the price improvement (if any)provided by the plurality of executing brokers quoting liquidity for thesecurity in the transaction. This analysis accesses the system archives1207 for historical data for a plurality of transactions executed by aplurality of executing brokers 202. The results of the price improvementanalysis are converted to cents per share.

In step 1264, the system of the present invention conducts an analysisof time required to execute an order by examining, for individualexecuting brokers, trade execution data to compare the time theexecuting broker received an order to the time the order was actuallyexecuted. This difference represents the execution time for theexecuting broker. The system of the present invention also examinesreal-time transaction data to determine the current velocity for thesecurity (the current rate of change in the price of the security). Theexecution time data (in number of seconds and/or fractions thereof) ismultiplied by the velocity of the security (the current rate of changein the price of the security) to determine the cent per share cost ofthe execution speed 1254 for the plurality of executing brokers 202 haveexecuted a plurality of transactions.

Referring now to FIG. 12G(ii), in step 1265, utilizing the orderoptimization engine 1208, the system of the present invention combinesthe share price (e.g., in dollars and cents) offered by each executingbroker 202 along with their current execution cost in cents per share,the expected price improvement in cents per share, and the executionspeed cost in cents per share. The resulting total is the expected totalexecution cost per share 1255 for the security, in cents per share, foreach executing broker 202 that is quoting liquidity (in numbers ofshares) for the security in the transaction.

In step 1266, the system of the present invention ranks the plurality ofexecuting brokers 202, for example, in order from the lowest totalexecution cost to the highest expected total execution cost 1256.

In step 1267, the system of the present invention, using the expectedtotal execution cost, develops rankings 1257 to specify the executingbroker 202 or plurality of executing brokers 202 and the order in whichthe executing brokers 202 should be utilized so as to ensure the lowesttotal execution cost is achieved 1257.

In step 1268, the optimized broker selection order is communicated tothe initiating party 1236 through the GUI 1202 or the optimized brokerselection order is implemented through the system of the presentinvention, through tangible output such as an electronic feed or uploadof the executing broker rankings, or a manual conversion of the datainto another system to route the orders to the desired executingbrokers. The order routing can also be printed on paper or displayed ina graphical user interface.

In one embodiment of the present invention, the tangible output of theoptimized broker selection order comprises issuing instructions to routeall or part of the order for the current securities transaction to theexecuting broker having the lowest total expected execution cost. Inaddition, in some cases, more than one executing broker may have thelowest total expected execution cost. Accordingly, an embodiment of themethod comprises determining a plurality of executing brokers having thelowest total expected execution cost, and issuing instructions to routethe order for the current securities transaction among those pluralityof executing brokers having the lowest total expected execution costbased on customized parameters. Customized parameters can include, forexample, an even division among the plurality of executing brokers, apro rata allocation among shares available, or an allocation based onthe largest to smallest quantity of shares available from each of theplurality of executing brokers.

In a further embodiment of the present invention, the methods describedabove for selecting executing brokers are repeated, for example, toaccommodate a large order that, if executed in one transaction, mightundesirably impact the price of the security. Thus, for example, a largeorder can be divided into many small sub-orders executed at certainfrequencies over a period of time. The methods for selecting executingbrokers for an order can be repeated over time based on customizedparameters determining the number, timing, and frequency of the repeatedselection of executing brokers for an order. The customized parameterscan, for example, include one or more of: (1) a specified interval untilan order is completely filled or filled to a specified percentage; (2) aspecified number of repetitions; (3) a specified time interval; (3) aspecified duration; (4) a specified change in unit price; (5) aspecified percentage within a target price; and (6) a specified unitprice.

For purposes of description, the above system and process utilizesequity shares as the unit of trading. However, the system of the presentinvention could also be utilized across multiple forms of trading suchas fixed income, options, futures, currency, commodities, derivatives,and other such instruments that utilize a standard category of unit(such as shares, units, bonds, contracts, etc.) for purposes ofimplementing an automated and efficient trading process.

As one of ordinary skill in the art would appreciate, in addition to thecomponents of (1) the share price multiplied by the number of shares and(2) the execution cost multiplied by the number of shares, the totaltransaction cost may also include charges for additional items such asconfirmation delivery (“postage”), SIPC charges, and transaction taxes.These additional items have not been included in the above analyses inorder to focus on the market-based factors in determining the total costof a securities trade to the participants in the transaction. However,in a further embodiment of the present invention, the costs of theseadditional items are factored into the total execution cost.

6) Trade Reconciliation System

FIG. 13 is a schematic diagram illustrating a trade reconciliationsystem 1300, according to an embodiment of the present invention. Thetrade reconciliation system is a computerized trade processing systemthat functions in the back office system for the investment portfolios.The trade reconciliation system can comprise general ledger andaccounting 1301, position manager 1302, and stock record 1303 modules.The position manager 1302 can comprise an auto cage 1304 that connectsto clearing organizations 1305. The position manager module 1302 andstock record module 1303 support the trade processing module 1306 thatprovides commission accounting 1307 and trade processing 1308. The stockrecord also supports the purchase and sales module 1309, whichincorporates data through external data providers 1310 and marketconnections 1311. The trade reconciliation system 1300 providesreal-time, multi-currency trade settlement rules, trade comparisons,trade confirmation and affirmations, purchases and sales, tradeexception processing, commission calculations, accruals, cash flows, andtrial balances. In essence, the trade reconciliation system 1300operates in an automated fashion through the incorporation of real-timeand batch data feeds from a variety of different sources. In itssimplest form, the trade reconciliation process ensures that: (1) alltrades are properly accounted; (2) all trading, pricing, and processingerrors have been identified and addressed; and (3) all accounts are inbalance. At the conclusion of this process, the entire system is readyfor the next day's trading activity.

In the prior art, the trade reconciliation process is the responsibilityof both the sub-advisor and the sponsoring organization while thebalancing of accounts is the responsibility of the sponsoringorganization. In an embodiment of the present invention, theresponsibility for both the trade reconciliation process and thebalancing of accounts shifts to the sponsoring organization.

7) Additional Systems

The system of the present invention can also include additional systemsto support order execution processing. These systems include acommunications engine to translate and direct all messages between theappropriate parties; a communications protocol for directing the messagegeneration and transmission process; a message format for variousmessage types, headers, fields names, field data formats and acceptableparameters as to eliminate confusion as to message content,instructions, and destination; and a communications network to connectall sub-advisors, sponsoring organizations, and executing brokers withreal-time, reliable, and scalable connectivity

B. Process

In an embodiment of the present invention, the functionalresponsibilities, personnel requirements, system requirements,regulatory responsibilities, and data flows are dramatically differentfrom the prior art. From a perspective of responsibility for the subsystems, Table 7 below illustrates how the operating responsibilitiesfor the various systems change from the prior art to an embodiment ofthe present invention.

TABLE 7 Operating Responsibilities of the Present Invention SystemResponsibility Prior Art Present Invention Order Entry Sub-advisorSub-advisor Compliance Engine Sub-advisor Sponsoring Organization andSub-Advisor Order Management Sub-advisor Sponsoring Organization andSystem Sub-Advisor High Touch - Low Not Applicable SponsoringOrganization Touch Engine Real-Time Automated Process Price -Liquidity - Cost - Not Applicable Sponsoring Organization Quality EngineReal-Time Automated Process Trade Reconciliation Sub-advisor SponsoringOrganization Communications Engine Sub-advisor Sponsoring OrganizationCommunications Sub-advisor Sponsoring Organization ProtocolCommunications Sub-advisor Sponsoring Organization Network

With respect to the responsibilities of the sub-advisor, there aresubstantial differences between the prior art and the present invention.These differences are summarized in FIG. 14, which is a table thathighlights the impact on the sub-advisor according to an embodiment ofthe present invention. The unified trading and control system isflexible in its implementation in that implementation can proceed on afund by fund or manager by manager basis even as trading responsibilityfor certain funds or portfolios, such as an emerging markets or microcap stocks, may remain with the sub-advisors (assuming the sub-advisorhas proficiency with these less liquid issues that the sponsoringorganization may not possess.) Also, the money manager (or portfoliomanager) may desire more control over the trading of specific assets orissues, the utilization of certain trade strategies or the direction oforders to a specific executing broker. The authorization of suchexceptions remains with the sponsoring organization as the sponsoringorganization can authorize those exceptions that benefit the fundshareholders or plan beneficiaries. Overall, in an embodiment of thepresent invention, there are multiple benefits for the sub-advisor withrespect to lower operating expenses, less operating and trade error riskand, of course, superior fund performance.

Finally, an important user group that must be comfortable with thesystem implementation of the present invention is the portfolio managersmaking the daily buy and sell decisions in the fund or investmentportfolio. The system of the present invention addresses the portfoliomanagers' concern that their asset management process is not interferedwith as new systems, processes, and procedures are implemented.

C. Rationale for Implementation of Standards in the System of thePresent Invention

An embodiment of the present invention provides a standard systemcomprising one or more of the following components: communicationsprotocol, communications format, communications network, messagetransfer facilitation software, and dedicated computer processor. Thestandard for the system of the present invention provides simplicity,reliability, scalability, and cost effectiveness in contrast to thecomplexity, expense, and potentially chaotic processing caused aplurality of sponsoring organizations making individual systemsdecisions without regard to the burden that the plurality of systems andconfiguration places on their sub-advisors and executing brokers. Assuch, the standard represents a single group of specific components foruse by all parties, in which a sub-advisor or executing brokerimplementing the system of the present invention with a singlesponsoring organization is able to duplicate, as a “cookie cutter” typeprocess, the initial implementation, inclusive of process, procedures,protocols, and connectivity, with each subsequent sponsoringorganization that requires their implementation of the system of thepresent invention. The result is that the standard, as a single group ofspecific components for use by all parties, vastly simplifies theimplementation process for all parties and creates a far more reliable,cost effective, and scalable system.

For example, a single mutual fund company (such as AIM, Janus, orOppenheimer) may act as a sub-advisor to ten to twenty differentsponsoring organizations (usually managing between one and five fundsper sponsoring organization). As such, a mutual fund company may managetwenty to sixty separate sub-advised funds alongside their thirty tofifty proprietary mutual funds (and as many or more institutional andprivate accounts). A money manager at a mutual fund company making asingle trade (such as: buy IBM) in a single strategy (such as large capgrowth) could easily impact ten to twenty separate individual portfoliosutilizing the large cap growth strategy. These orders are communicatedto the sponsoring organizations through standard communications messagessent through a communications protocol, communications format,communications network, message transfer facilitation software, anddedicated computer processors. It is clear that the money managerachieves a high level of automation and significant reduction inoperating risk (and associated trading losses), as trading across aplurality of accounts is implemented through a single standard andintegrated system.

In comparison, the potential complexity of the various implementationsof the system of the present invention reflects the following factors.

The National Association of Variable Annuities (NAVA), the variableinsurance industry trade group, indicates that it has over fifty membersacting as sponsoring organizations for their mutual fund, variableannuity, and defined contribution (401k, 403b and 457) financialproducts (see FIG. 15). The number of additional sponsoringorganizations, such as private and public pension funds, easily addsseveral hundred more sponsoring organizations to the list shown in FIG.15.

The Investment Company Institute (ICI), the mutual fund industry tradegroup, has over three hundred member mutual fund companies suitable toprovide money management services to sub-advised funds (see FIGS. 16Aand 16B) and there are hundreds of additional institutional managerscapable of functioning as a sub-advisor to an investment portfolio.

There are also over forty providers of order management systems (seeFIG. 17) and there are several hundred firms offering their services asexecuting brokers (see FIGS. 18A and 18B for a partial list).

In addition, there are over 75 companies offering over 115 differentcommunications engines for trade order messaging, translation, anddestination routing. These communications engines usually utilize acommon industry communications protocol (usually the FinancialInformation eXchange format or “FIX”). However, each communicationsengine has its own unique “dialect” as to the specific implementation ofthe protocol. As such, despite the common industry protocol, thereremain substantial challenges in the interoperability and ease ofcommunications between the pluralities of communications engines.Finally, there are over 25 communications networks available forsponsoring organizations to utilize as their means of connectivity tosub-advisors and executing brokers, thereby requiring each sub-advisorand executing brokers to link as a node to each system selected by atleast one sponsoring organization.

Given the plurality of sponsoring organizations (as shown in FIG. 15 andinclusive of additional sponsoring organizations such as mutual fundsutilizing sub-advisors, defined contribution plan sponsors, pension anddefined benefit sponsors, and other user groups of considerable size),sub-advisors (as shown in FIGS. 16A and B), order management systems (asshown in FIG. 17), executing brokers (as shown in FIGS. 18A and 18B)along with the 115 communications engine with each utilizing a specific“dialect” reflecting its original time and purpose of creation, severalcommunications protocols for messaging and 25 communications networks,the number of potential unique configurations of these organizations andsystems is so overwhelming as to create such complexity and chaos as toprevent an implementation of the system of the present invention basedon the well-justified concerns that any level of industry acceptancecould result in unacceptable complexity, operating costs, personnelcosts, order entry errors, trade processing errors, and associatedreduced performance of investment portfolios. Given that the sub-advisoris required to compensate an investment portfolio for all lossesresulting from their errors of any kind, the likely result of an absenceof a standard is the refusal by sub-advisors to cooperate with animplementation of the system of the present invention.

FIG. 19 provides an exemplary structure 1900 illustrating the complexitycreated by a plurality of sponsoring organizations 304 deciding toimplement the embodiment of the present invention without a standardsystem 1901. In this illustration, twenty-two different sponsoringorganizations 304 select ten different order management systems 1901.The sponsoring organizations 304 utilize a total of forty-two differentsub-advisors 301 in their financial product or pension portfolios alongwith eight different executing brokers 202 (while in actual practice theactual number of sponsoring organizations 304, sub-advisors 301, andexecuting brokers 202 would be considerably higher than the illustrationin FIG. 19). Each sub-advisor 301 is asked to move from a single systemto a plurality of systems 1901 (as there are over forty systemsavailable to a sponsoring organization as shown in FIG. 17) selected byeach sponsoring organization. As a result, a single trade by a singlesub-advisor 301 may require order entry into ten or more differentsystems selected by sponsoring organizations. Such a process could becomplex, chaotic, costly, and rife with errors. The associated expensefor resolving the errors (as the fund shareholders and planbeneficiaries are not responsible for such errors and must be reimbursedfor any losses) could make sub-advisors 301 unwilling to implement sucha process.

FIG. 20 illustrates the complexity of such an embodiment 2000 without astandard 1901 through a focus on the complexity facing a singlesub-advisor 301 managing nine proprietary funds 2001 utilizing a singlesystem 1901 and nine sponsoring organization funds or investmentportfolios for sponsoring organizations 2002 utilizing a plurality ofsystems 1901. The illustration demonstrates, even at the small scale ofa single sub-advisor, the inherent complexity and potential chaos ofsuch an implementation without the use of a standard system.

Therefore, to reduce this complexity, an embodiment of the presentinvention provides a single standard. FIG. 21 illustrates thesimplicity, ease of use, and efficiency resulting from an embodiment2100 utilizing a designated standard single manager order managementsystem 2101 for use by all sponsoring organizations 304. The standardorder management system and single network node connection by a singleparty to all parties reflects a vast improvement in the operatingreliability, costs, and ease of implementation and operation. As shown,a single system 2101 (e.g., in this illustration, a standard ordermanagement system, communications engine, communications protocol,communications format, and/or communications network; however, anembodiment could require fewer of the listed standard components) can beused as an easily and rapidly duplicated image used by sponsoringorganizations 304. A standard—implemented through, for example, adesignated order management system, communications engine, orcommunications protocol—creates the leverage for allowing rapid industryadoption of the system of the present invention.

II. Exemplary System Components, Services, and Data of a SponsoringOrganization

In an embodiment of the present invention, the following systems,services, and data are preferably in place for a sponsoringorganization's investment portfolios:

Custody firm to hold the securities and cash for benefit of the fundsand plans.

Daily net cash contribution or withdrawal per investment portfolio—e.g.,can be provided by the sponsoring organization to the systemadministrator.

Security master data service.

Best execution monitoring service.

Transaction cost accounting system.

System administrator for the HiLo Engine (HLE).

HiLo Engine (HLE).

Sponsoring organization (advisors).

Investment portfolios of the sponsoring organization.

Money management firms (sub-advisors).

Portfolio manager or teams of portfolio managers for the investmentportfolio.

Order management systems (and/or execution management systems) at thesponsoring organization and money management firms.

Compliance systems at the sponsoring organization and money managementfirms.

Connectivity network between sponsoring organization, money managementfirms, and executing venues or brokers.

Standard message format and transmission protocol for communication withthe HiLo Engine.

Network of executing venues or brokers.

Real-time market data feeds.

Archive of market data on trade executions.

Trade reconciliation systems at the sponsoring organization and moneymanagement firms.

III. Exemplary Implementation of the Present Invention

With reference to FIG. 22, which is an alternative to the embodimentshown in FIG. 11Cii, an exemplary system of the present invention is asfollows. The actors include a system administrator administering theunified trading and control system 2200, a sub-advisor 301 acting asmoney manager for the investment portfolios, a portfolio manager (moneymanager) 1103 responsible for making investment decisions for a fund orinvestment portfolio, a sub-advisor trade/operations group 2201, asub-advisor compliance group 2202, a sponsoring organization compliancegroup (not shown), a sponsoring organization 304 controlling party forthe assets and responsible for client books and records, a custodialfirm holding all securities and cash (not shown), and executing brokers202 as the parties to whom the buy or sell order is directed to beexecuted (filled).

The system includes a unified trading and control system 2200 includinga portfolio modeling system 1103, an order entry system 700, asub-advisor compliance engine 506 SA, a sub-advisor order managementsystem (OMS) 503 SA, the hi touch-low touch engine 1105, the trade orderrotation engine 1112 and 1113, the sponsoring organization standardorder management system (OMS) 503 SO, a sponsoring organizationcompliance system 506 SO, the price—liquidity—cost—quality engine 1200,the sponsoring organization's communications network 502, the network ofexecuting brokers supporting the sponsoring organization 302, theindividual executing brokers 202, and the trade reconciliation system1117.

FIG. 22 also illustrates an exemplary process of the present inventionhaving the following steps, which correspond to the arrows and theiradjacent reference numerals shown in FIG. 22.

2225) Sub-advisor 301 provides a portfolio manager 1103 for the fund orinvestment portfolio.

2226) Portfolio manager 1103 sends the trade order to thetrade/operations group 2201 for order entry.

2227) Trade/operations group 2201 enters the order into the order entrysystem 700.

2228) As an alternative to step 2226 and 2227, the portfolio manager1103 enters the trade order directly into the order entry system 700.

2229) The order entry system 700 routes the order to the complianceengine 506 SA for evaluating the order relative to regulatory andprospectus requirements and restrictions.

2230) If a violation occurs (Violation=Yes), the order is stopped fromexecution and routed for review by the sub-advisor. The violation isalso reported to the sponsoring organization compliance group (notshown) and to any or all of the sub-advisor groups shown in steps 2231,2232, and 2233.

2231) If a violation occurs (Violation=Yes), the order can be routed tothe trade/ops group 2201.

2232) If a violation occurs (Violation=Yes), the order can be routed tothe compliance group 2202.

2233) If a violation occurs (Violation=Yes), the order can be routed tothe portfolio manager 1103.

2234) If a violation does not occur (Violation=No), the order is routedto the order management system (OMS) 503 SA, which, through thesub-advisor routing loop, directs the order for sub-advised funds oraccounts to the HiLo Engine (HLE) 1105. Although FIG. 22 depicts theHiLo Engine 1105 as located within the unified trading and controlsystem, one of ordinary skill in the art would appreciate that the HiLoEngine 1105 could be located elsewhere, such as at the sub-advisor 301or sponsoring organization 306.

2235) The HiLo Engine 1105 determines the expected market impact oforders received from the sub-advisor order management system (OMS) 503and categorizes orders with significant expected market impact as “hightouch” orders 1106.

2236) The high touch order 1106 is further categorized as orders to be“worked” by a block trading desk, crossing system, matching system, darkpool of liquidity, or some other form of institution to institutiontrading system or exchange 1109. These high touch trades are routed tothe sponsoring organization's compliance engine 506 SO for pre-executionreview and approval and, once approved, are ready for execution. (Thesponsoring organization compliance review step is not shown).

2237) As an alternative to step 2236, the high touch order 1106 isdivided into a series of smaller orders 1108 by a trading algorithm or aset of manual decisions 1107.

2238) The trading algorithm or set of manual decisions divides the orderinto a series of smaller orders 1108 for execution over a period oftime.

2239) Each of the smaller orders 1108 resulting from the original hightouch order is re-routed, via the sub-advisor re-routing loop, to theHiLo Engine 1105. Step 2239 starts the sub-advisor rerouting loop.

2240) The HiLo Engine evaluates the re-routed smaller orders 1108,categorizes the orders with significant market impact as high touchorders 1109, and routes these orders to be “worked” 1109.

2241) High touch orders 1109 are directed via auto routing 1110 to thesub-advisor's order management system 503 SA. Although FIG. 22 depictsthe HiLo Engine 1105 as located within the unified trading and controlsystem, one of ordinary skill in the art would appreciate that the HiLoEngine 1105 could be located elsewhere, such as at the sub-advisor 301or sponsoring organization 306.

2242) The sub-advisor's order management system 503 SA receives the hightouch order 1106 and selects the executing broker(s) 202.

2243) The sub-advisor order management system 503 SA routes the hightouch orders 1106 to the executing broker(s) 202 for execution.

2244) Once the orders are executed by the executing brokers 202, thetrade fill data for the high touch trades 1106 is routed to thesub-advisor order management system 503 SA.

2245) The sub-advisor order management system 503 SA determines, whenapplicable, the allocation of shares for the sponsoring organization androutes the trade allocation data along with the trade fill data (fortrades not requiring a special allocation) for the high touch trades tothe sponsoring organization's order management system 503 SO.

2246) The sponsoring organization's order management system 503 SOroutes the trade allocation data for the sponsoring organization'sallocation of shares of the high touch trade and the trade fill data(for trades not requiring a special allocation) to the sponsoringorganization's compliance engine 506 SO.

2247) If a violation occurs (Violation=Yes), the trade allocation datafor the sponsoring organization's allocation of shares of the high touchtrade is routed for review by both the sponsoring organization 306 andthe sub-advisor 301.

2248) If a violation does not occur (Violation=No), the trade allocationdata for the sponsoring organization's shares of the high touch trade isrouted to the sponsoring organization's order management system (OMS)503 SO.

2249) The sponsoring organization's order management system (OMS) 503 SOroutes the trade allocation data for the sponsoring organization'sshares of the high touch trade to the sponsoring organization's tradereconciliation system 1117. Steps 2235 through 2249 constitute the hightouch order processing loop.

2250) Returning to steps 2234 and 2239, when the HiLo Engine 1105receives orders from the sub-advisor order management system (OMS) 503SA (as either the original and re-routed orders) that it determines willhave little or no significant expected market impact, the HiLo Engine(HLE) 1105 categorizes those orders as “low touch” orders 1111 that canbe processed as “electronic” or “black box” orders, which computersystems can execute with virtually no human intervention. The “lowtouch” order 1111 can be either original orders or re-routed orders fromthe sub-advisor order management system 503.

2251) The HiLo Engine 1105 directs low touch orders 1111 that constitutean exemplary order for an exemplary fund (and thus does not require atrade rotation order) to the sponsoring organization 304. For example, asingle order for a single fund would not require a trade rotation order.

2252) The HiLo Engine 1105 routes trades requiring a trade orderrotation to the trade order rotation engine 1112 in order to determine atrade rotation order between the sub-advisor 301 and the sponsoringorganization(s) 304 and 1116. For example, an order involving severalsub-advisor funds and several sponsoring organization funds wouldrequire a trade rotation order. As another example, when an assetmanager places a plurality of orders in a given security for executionacross a plurality of investment portfolios, trade order rotation isrequired.

2253) The trade order rotation engine 1112 prepares trade rotationinstructions 1113 for the sub-advisor 301.

2254) The trade rotation instructions 1113 are communicated to thesub-advisor's order management system 503 SA via auto routing 1110(along steps 2254 a and 2254 b).

2255) The trade rotation engine 1114 determines the trade rotation orderbetween a plurality of sponsoring organizations, such as the sponsoringorganization 304 and any number of additional sponsoring organizationsas represented by sponsoring organization (SO_(x)) 1116. The traderotation order could also be determined as a single trade rotation orderbetween the sub-advisor 301 and sponsoring organizations 304 and 1116.

2256) The trade rotation engine 1114 prepares trade rotationinstructions 1115 for the sponsoring organizations 304 and 1116.

2257) The trade rotation instructions 1115 are communicated to thesponsoring organizations 304 and 1116.

2258) The orders are routed to the sponsoring organization's ordermanagement system (OMS) 503 SO. This step is illustrated for anexemplary sponsoring organization 306 with a similar process implementedby all sponsoring organizations (SO_(x)) 1116.

2259) The sponsoring organization's order management system (OMS) 503 SOroutes the order to the compliance engine 506 SO for evaluating theorder relative to regulatory and prospectus requirements andrestrictions.

2260) If a violation occurs (Violation=Yes), the order is stopped fromexecution and routed for review by the sponsoring organization'scompliance group (not shown) and the sub-advisor's compliance group2202.

2261) If a violation does not occur (Violation=No), the order is routedto the price—liquidity—cost—quality (PLCQ) engine 1200, which examinesthe current market share prices, liquidity, execution cost, and qualityfactors such as expected price improvement (and execution speed) todetermine the optimal combination of executing brokers providing themost cost effective execution options.

2262) The price—liquidity—cost—quality (PLCQ) engine 1200 communicatesthe optimal cost effective order composition of executing brokers to thesponsoring organization's order management system (OMS) 503 SO.

2263) The sponsoring organization's order management system (OMS) 503 SOselects the executing brokers 202 and routes the orders for executionthrough the communications network 502.

2264) The communications network 502 directs the orders to the networkof executing brokers 302 and to the designated executing brokers 202 forexecution.

2265) The executing brokers 202 execute the trade and report the tradefills back to the communications network 502.

2266) The communications network 502 reports the trade fill reports backto the sub-advisor's order management system (OMS) 503 SA.

2267) The sub-advisor's order management system (OMS) 503 SA sends thetrade fill reports back to the compliance engine 506 SA for post tradecompliance review. If a violation occurs (Violation=Yes), the process asshown in steps 2230, 2231, 2232, and 2233 is implemented.

2268) If a violation does not occur (Violation=No), the complianceengine 506 SA routes the trade fill reports to the order entry system700.

2269) The order entry system 700 provides the trade fill reports to thesub-advisor's trade/operations group 2201, portfolio manager 1103,compliance group 2202, and the sub-advisor's 301 business supportsystems.

2270) The communications network 502 reports the trade fill reports backto the sponsoring organization's order management system (OMS) 503 SO.The sponsoring organization also performs a post-execution compliancecheck through the compliance engine 506 SO. If a violation occurs(Violation=Yes), the process is implemented as shown in steps 2246,2247, and 2248 and the sponsoring organization's compliance group (notshown) is notified.

2271) If a violation does not occur (Violation=No), the sponsoringorganization's order management system (OMS) 503 SO routes the orders tothe sponsoring organization's trade reconciliation system 1117. Steps2250 through 2271 constitute the high touch order processing loop.

Additional aspects of the present invention provide more functionalityto the unified trading control system 2200 as described below.

One aspect of the present invention, provides a post trade and postclose compliance review processes that occur after the execution oftrade or after the close of the market whereby passive violations,consisting of violations due to changes in market prices, rather thantrading activity are highlighted and appropriate action taken to returnthe investment portfolio to proper compliance with the compliance reviewparameters for that investment portfolio. A post trade compliance reviewprocess may also occur when pre-trade compliance review of an order isnot feasible, such as when shares of an Initial Public Offering (IPO)are allocated to the money management firm who subsequently allocates aportion of these shares across a plurality of sub-advised accounts.

Another aspect of the present invention provides, pending the review ofan order by the sponsoring organization, the release of previouslysuspended orders by the sponsoring organizations for execution androuting, for execution, the low touch orders to the sponsoringorganization and the high touch orders to the sub-advisor.

Another aspect of the present invention provides the cancellation of anorder by the money management firm along with the cancellation andreplacement, by the money management firm, of an order with a modifiedorder. This process may involve the sponsoring organization, if theorder is partially filled, cancelling the unexecuted shares or possiblydenying the money management firm's cancel order requests. Finally, thesponsoring organization may initiate an order cancel process for anorder initiated by the money management firm.

Another aspect of the present invention provides that the execution ofan order by the sponsoring organization requires that the sponsoringorganization have a process to provide notice of the executed trade tothe money management firm though execution fill reports along withassociated notices involving modifications to execution fill reports andnotices regarding trade errors. Furthermore, a further aspect providesthat at the closing of the market at the end of the trading day, recordsof transaction activity are sent, as transaction summary reports, by thesponsoring organization and money management firms to each other toassist in the daily trade reconciliation process between the sponsoringorganization and money management firms.

Another aspect of the present invention provides that the sponsoringorganization may participate in more sophisticated trading activity byaggregating their orders, among their accounts or with a plurality ofother sponsoring organizations or market participants, into a singleblock trade; crossing their orders with a plurality of other sponsoringorganizations or market participants, or crossing both side of their ownorders internally when they hold simultaneous buy and sell orders forthe same security (as may occur when rebalancing model portfolios).

Another aspect of the present invention provides the implementation ofnew rules for categorizing orders with respect to expected marketimpact, and the introduction of new methods for measuring market impact,such as alternative tests, measures and parameters. For example, amaximum number of shares could be implemented for determining orders aslow touch. The present invention specifies a number of methods, but thislist is certainly not considered exhaustive and the present invention isnot limited to any specific methods for determining expected marketimpact.

Another aspect of the present invention provides the utilization of areal-time communications system that provides real-time checks, such asa heartbeat function, on communications links between the HLE and thesponsoring organizations and money management firms.

Overall, as shown by the various embodiments described above, the systemand process of the present invention provide a comprehensive pre-tradecompliance process that prevents the execution of orders that violatessecurities laws, account restrictions and prohibited transactions alongwith clear, substantial, quantifiable, recurring, and compounding costsavings and the resulting improved investment performance to fundshareholders and plan beneficiaries. The present invention provides ahighly desirable social utility of considerable, recurring, andcompounding shareholder and plan beneficiary savings. Indeed, areasonably effective implementation of the embodiment of the presentinvention could easily benefit millions of Americans throughsubstantially improved performance of their investment portfolios.

FIG. 23 shows estimated exemplary projected annual savings, based on2005 trade data, potentially generated by an embodiment of the presentinvention for a number of fund trusts in the variable insurance industryfor average trade execution costs of 1.00 cent per share. Given thatsponsoring organizations (as advisor for regulatory purposes) and theassociated fund board of directors and plan investment consultants havea fiduciary responsibility to control (minimize) operating expenses,there exists a fiduciary obligation to evaluate and, if appropriate,implement any process (such as those provided by the system of thepresent invention) that provides substantial, recurring, andquantifiable cost savings and improved performance to fund shareholdersand plan beneficiaries. The data for estimates in this table wascompiled from publicly available documents filed by each fund trust withthe SEC, including the prospectus, annual report, and statement ofadditional information.

Furthermore, the savings to the fund shareholder and plan beneficiariesoccur each year that the funds and accounts utilize the system andprocess of the present invention. Thus, these benefit of these savingscompound and become increasingly more valuable over time. FIGS. 24A,24B, 24C, and 24D represent a compilation of research for four popularfund trusts (groups of funds) with $38.7 BB, $12.7 BB, $6.7 BB, and $5.3BB in assets, and shows estimated exemplary total compounded shareholdersavings and resulting improved investment performance, at an averageexecution cost of 1.00 cent per share, over a 1, 3, 5, and 10 yearperiod. The data for estimates in these tables were compiled frompublicly available documents filed by each fund trust with the SEC,including the prospectus, annual report, and statement of additionalinformation. Such improved performance could, potentially, improve thedecile (ranking by tenths) or quartile (ranking by quarter) performanceratings of these funds relative to their peers (who are not utilizingthe embodiment of the present invention). Given that these investmentportfolios are associated with personal goals for each fund shareholderand plan beneficiary such as a comfortable retirement, higher education,and improved health care, the social utility created by the embodimentof the present invention is potentially dramatic for millions ofAmericans.

For illustration purposes, portions of this specification describe thepresent invention in the context of variable insurance (includingvariable fund LLCs and registered investment companies (RICs), mutualfund, or pension plan market). However, as one of ordinary skill in theart would appreciate, the systems and methods described herein applyequally well to other similar markets, such as a sub-advised mutual fundmarket, the defined contribution market, 529 plans, hedge funds,collective investments, deferred compensation plans, institutionalaccounts, separate accounts of insurance companies, defined benefitpension plans, endowments, and trusts. For that reason, andnotwithstanding the particular benefits associated with using thepresent invention in connection with the variable insurance or pensionplan markets, the system and method described herein should beconsidered broadly applicable to any market in need of centralizedportfolio management, directed brokerage control, and/or direct andautomated compliance monitoring by the sponsoring organization withprimary regulatory responsibility for a given sub-advised pool ofassets.

In accordance with an embodiment of the present invention, instructionsadapted to be executed by a processor to perform a method are stored ona computer-readable medium. The computer-readable medium can be accessedby a processor suitable for executing instructions adapted to beexecuted. The terms “instructions configured to be executed” and“instructions to be executed” are meant to encompass any instructionsthat are ready to be executed in their present form (e.g., machine code)by a processor, or require further manipulation (e.g., compilation,decryption, or provided with an access code, etc.) to be ready to beexecuted by a processor.

In the context of this document, a “computer-readable medium” can be anymeans that can contain, store, communicate, propagate, or transport theprogram for use by or in connection with the instruction executionsystem, apparatus, or device. The computer readable medium can be, forexample, but is not limited to, an electronic, magnetic, optical,electromagnetic, infrared, or semi-conductor system, apparatus, device,or propagation medium. More specific examples (a non-exhaustive list) ofcomputer-readable medium would include the following: an electricalconnection having one or more wires, a portable computer diskette, arandom access memory (RAM), a read-only memory (ROM), an erasable,programmable, read-only memory (EPROM or Flash memory), an opticalfiber, and a portable compact disk read-only memory (CDROM). Note thatthe computer-readable medium could even be paper or another suitablemedium upon which the program is printed, as the program can beelectronically captured, via for instance, optical scanning of the paperor other medium, then compiled, interpreted, or otherwise processed in asuitable manner, if necessary, and then stored in a computer memory.

The foregoing disclosure of the preferred embodiments of the presentinvention has been presented for purposes of illustration anddescription. It is not intended to be exhaustive or to limit theinvention to the precise forms disclosed. Many variations andmodifications of the embodiments described herein will be apparent toone of ordinary skill in the art in light of the above disclosure. Thescope of the invention is to be defined only by the claims appendedhereto, and by their equivalents.

Further, in describing representative embodiments of the presentinvention, the specification may have presented the method and/orprocess of the present invention as a particular sequence of steps.However, to the extent that the method or process does not rely on theparticular order of steps set forth herein, the method or process shouldnot be limited to the particular sequence of steps described. As one ofordinary skill in the art would appreciate, other sequences of steps maybe possible. Therefore, the particular order of the steps set forth inthe specification should not be construed as limitations on the claims.In addition, the claims directed to the method and/or process of thepresent invention should not be limited to the performance of theirsteps in the order written, and one skilled in the art can readilyappreciate that the sequences may be varied and still remain within thespirit and scope of the present invention.

1. A method for assigning responsibility for trade order execution to facilitate a sponsoring organization's asset management process that uses at least one asset management firm to manage the sponsoring organization's investment portfolios, the method comprising: receiving, through a computer-based communications network, orders from an asset management firm, each order comprising a number of asset units to buy or sell, wherein the orders are received through an order entry system comprising a computer-based graphical user interface and associated software program; determining, for each order, whether the sponsoring organization or the asset management firm is assigned discretion for facilitating execution of the each order, wherein the sponsoring organization is assigned discretion for low touch orders expected to have low market impact and the asset management firm is assigned discretion for high touch orders expected to have high market impact; facilitating, based on the assignment of discretion, execution of the high touch orders by at least one trading organization; and facilitating, based on the assignment of discretion, execution of the low touch orders by at least one trading organization.
 2. The method of claim 1, wherein the at least one trading organization that executes the high touch orders is authorized by the asset management firm assigned discretion, and wherein the at least one trading organization that executes the low touch orders is authorized by the sponsoring organization assigned discretion.
 3. The method of claim 1, further comprising enabling the sponsoring organization to, using a compliance engine, review and either approve for execution or hold from execution the each order before order execution, wherein the compliance engine comprises a graphical user interface and associated software program linked to a computerized rules-based logic engine that enables each order to be analyzed in real time.
 4. The method of claim 1, further comprising enabling the sponsoring organization to authorize, in exercise of discretion over routing of orders, at least one trading organization providing low cost execution.
 5. The method of claim 1, further comprising: if the expected market impact is low, following, when applicable, a random trade order rotation according to a defined procedure, and having the sponsoring organization authorize the at least one trading organization according to a determination of the most cost effective strategy for an order; if the expected market impact is high, formulating a trade strategy for the each order that may result in a modified order, assigning discretion over the modified order to the sponsoring organization when the modified order results in a plurality of low impact orders, wherein the sponsoring organization authorizes the at least one trading organization for orders of the modified order expected to have low market impact, and retaining the each order or the modified order expected to have high market impact by the asset management firm assigned discretion, wherein the asset management firm assigned discretion authorizes the at least one trading organization for the orders expected to have high market impact.
 6. The method of claim 1, further comprising determining in real time for each order whether expected market impact is low or high using a set of customizable logical rules.
 7. The method of claim 6, further comprising receiving changes to logical rules and adjusting the logical rules in real time.
 8. The method of claim 6, wherein determining whether expected market impact is low or high comprises receiving a real time feed of market data and using the market data in determining expected market impact.
 9. The method of claim 1, further comprising: receiving orders from a plurality of asset management firms; and for each order of the plurality of asset management firms, determining the assignment of discretion and facilitating execution of the high touch and low touch orders.
 10. The method of claim 1, wherein facilitating execution of one of the low touch and high touch orders comprises effecting transmission of the one order to at least one trading organization over a computer network.
 11. The method of claim 1, wherein facilitating the execution of the high touch orders comprises directing the high touch orders to the at least one trading organization executing the high touch orders, and wherein facilitating the execution of the low touch orders comprises directing the low touch orders to the at least one trading organization executing the low touch orders.
 12. The method of claim 1, wherein facilitating the execution of the high touch orders comprises routing the high touch orders to the at least one trading organization executing the high touch orders, and wherein facilitating the execution of the low touch orders comprises routing the low touch orders to the at least one trading organization executing the low touch orders.
 13. The method of claim 1, wherein facilitating execution of the low touch orders comprises facilitating a direction by a sponsoring organization to an asset management firm to route low touch orders, consistent with the asset management firm's regulatory requirements, to one or more trading organizations selected by the sponsoring organization.
 14. The method of claim 1, wherein the asset units comprise at least one of equities, fixed income securities, options, futures, currency, commodities, and derivatives.
 15. The method of claim 1, wherein the asset units comprise a standard category of unit, and wherein the unit comprises one of shares, bonds, and contracts.
 16. The method of claim 1, wherein the asset units comprise units of at least one of registered mutual funds, non-registered mutual funds, institutional investment portfolios, variable insurance funds, variable fund LLCs, regulated investment company funds, defined contribution plans, 529 plans, hedge funds, group annuities, collective investments, deferred compensation plans, separately managed accounts, institutional funds, separate accounts of insurance companies, pension plans, endowments, and trusts.
 17. The method of claim 1, wherein the orders comprise one or more of low touch orders, low touch algorithm orders, low touch trade rotation order orders, low touch algorithm trade rotation order orders, and low touch block orders.
 18. The method of claim 1, wherein the at least one trading organization executing the high touch orders comprises at least one of an executing broker and a venue selected by an asset management firm and the at least one trading organization executing the low touch orders comprises at least one of an executing broker and a venue selected by a sponsoring organization.
 19. The method of claim 1, wherein facilitating execution of the low touch orders comprises routing a group of low touch orders to a network of at least one of executing brokers and venues selected by the sponsoring organization associated with the group of low touch orders.
 20. A computer system for assigning responsibility for trade order execution to facilitate a sponsoring organization's asset management process that uses at least one asset management firm to manage the sponsoring organization's investment portfolios, the computer system comprising: an order entry system comprising a computer-based graphical user interface and associated software program configured to receive, through a computer-based communications network, orders from an asset management firm, each order comprising a number of asset units to buy or sell; a high touch-low touch engine configured to determine, for each order, whether the sponsoring organization or the asset management firm is assigned discretion for facilitating execution of the each order, wherein the sponsoring organization is assigned discretion for low touch orders expected to have low market impact and the asset management firm is assigned discretion for high touch orders expected to have high market impact; and one or more trading systems collectively configured to: facilitate, based on the assignment of discretion, execution of the high touch orders by at least one trading organization, and facilitate, based on the assignment of discretion, execution of the low touch orders by at least one trading organization.
 21. In a system for facilitating a sponsoring organization's money management process using at least one asset management firm to manage the sponsoring organizations' investment portfolios, a method for assigning responsibility for trade order execution comprising: receiving, through a computer-based communications network, orders from the at least one asset management firm, each order comprising a number of asset units to buy or sell, wherein the orders are received through a computer-based graphical user interface and associated software program; determining, for each order received, based on designated market impact parameters, whether the sponsoring organization or the asset management firm associated with the each order is assigned discretion for facilitating execution of the each order, wherein the sponsoring organization is assigned discretion for low touch orders expected to have low market impact and the asset management firm associated with the each order is assigned discretion for high touch orders expected to have high market impact; facilitating, based on the assignment of discretion, execution of each high touch order by at least one trading organization selected by the asset management firm associated with the each high touch order; facilitating, based on the assignment of discretion, execution of each low touch order by at least one trading organization selected by the sponsoring organization; and aggregating the low touch orders on the same side of a trade for an issue for the sponsoring organization into a single block for trading.
 22. The method of claim 21, further comprising, after execution of the single block, allocating units among accounts of the sponsoring organization.
 23. The method of claim 21, further comprising aggregating into the single block low touch orders on the same side of a trade for an issue for the sponsoring organization and for a plurality of other sponsoring organizations, and after execution of the single block, allocating units among the sponsoring organization and the plurality of other sponsoring organizations. 